Shares of HEXO (HEXO 17.05%) (HEXO 20.00%) were tumbling 9.8% as of 10:43 a.m. EDT on Wednesday. The decline came after the Canadian cannabis producer announced that it has established an at-the-market (ATM) equity program that will allow it to issue common shares worth up to 34.5 million in Canadian dollars.
HEXO hasn't issued any new shares yet. The ATM program that the company set up merely gives it the ability to raise cash as needed. It will determine if and when to tap the ATM to issue additional shares.
But the marijuana stock fell today because investors know more dilution is likely on the way. As of April 30, HEXO's cash position totaled CA$112.6 million, including cash, cash equivalents, restricted cash, and short-term investments. The company could easily burn through that amount by the second half of 2021.
HEXO reported better-than-expected revenue growth with its fiscal 2020 Q3 results. Investors will want to watch to see if the company can keep its momentum going and make progress toward profitability. But don't look for profits anytime soon. HEXO's new ATM program will almost certainly be needed over the next year.