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Why HEXO Stock Dropped Friday

By Howard Smith - Apr 16, 2021 at 11:02AM

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The Canadian cannabis company is making plans to raise significantly more capital.

What happened

Shares of HEXO (HEXO 2.31%) dropped on Friday after the company filed to potentially do a significant capital raise. The stock has gained 50% year to date, and is 175% higher than one year ago. But shares declined on the news today, trading down as much as 8%, and settling down about 5% as of 10:30 a.m. EDT. 

So what

HEXO is potentially taking advantage of its higher share price with a filing to raise up to $1 billion to be able to issue common shares, warrants, or subscription units. For perspective, the company currently has a market capitalization of $680 million, leading investors to wonder how much potential dilution might be ahead. 

marijuana flower buds with in jar next to Canadian money

Image source: Getty Images.

HEXO CEO Sebastien St-Louis said the company is setting itself up to raise the additional capital "to provide maximum flexibility as we continue to pursue strategic initiatives in both the United States and Canada." 

Now what

Last month, HEXO reported it almost doubled net revenue in the fiscal second quarter of 2021, ended Jan. 31, compared to the prior-year quarter. In January, HEXO and beverage giant Molson Coors' joint venture, Truss CBD USA, announced the launch of Veryvell, a new non-alcoholic, sparkling CBD drink that will be available in Colorado. 

In a statement on last night's financial filing, St-Louis said, "We have now started to deploy capital in the United States, are remaining active in M&A and are in ongoing discussions with potential non-beverage [consumer package goods] partners which we expect will require additional capital as we continue to execute on our growth and expansion strategy." 

Investors at least know what the company might be looking to do with the additional capital, though some today have decided to lock in recent gains rather than accept the potential dilution.

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Stocks Mentioned

HEXO Stock Quote
HEXO
HEXO
$0.21 (2.31%) $0.00
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$55.23 (-0.20%) $0.11

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