Yet again, it's capital-raising time for beleaguered Canadian marijuana company Hexo (HEXO). On Tuesday, it announced the latest in a string of secondary stock issues, and shares promptly sank, closing the session 5% lower. In some respects, Hexo is lucky it didn't get slammed harder on the news.
Specifically, Hexo said that it has launched an at-the-market program to sell a maximum of $40 million -- or the Canadian dollar equivalent -- worth of its common stock. As is typical for at-the-market issues, the amounts and timing of these sales will be entirely at the discretion of the company. The program will terminate when the full amount of sales has been reached, or on June 10, 2023, whichever comes first.
Up to $30 million of those proceeds will be utilized by the marijuana company "for working capital and funding its operating activities." Management did not get more specific.
Any monies raised beyond that are to be channeled into covering the company's obligations arising from its April financing deal with Canadian peer Tilray. Under the terms of that arrangement, Tilray is buying $193 million of Hexo's convertible debt, and Hexo is obligated to pay interest on those securities.
Hexo is a consistently money-losing company in a largely money-losing industry. For years, it has been shoring up its shaky finances with dilutive share sales. This $40 million sale is quite sizable for the struggling company; the sinking stock price has withered its market capitalization to barely over $177 million.
Such a high level of new dilution would crush many other stocks. In Hexo's case, though, it's hardly unexpected, which is probably why traders sent the shares down by "only" 5% in response to the news.