In the latest of a series of fundraising rounds, HEXO (HEXO -12.82%) announced Thursday it has reached agreement to issue new shares to investors. The issue, which was effected by a registered direct offering, should earn the company gross proceeds of $25 million (although HEXO, a cannabis company, is based in Canada, all quoted figures are in U.S. dollars).
Specifically, just over 14.97 million shares of HEXO's common stock are to be sold at $1.67 per share. Additionally, the company will issue warrants to the participating investors. All told, these warrants carry the right to purchase nearly 7.49 million shares of the company. The exercise price is $2.45 per share.
HEXO said it made its agreement with institutional investors. It did not get more specific.
In the press release trumpeting its latest fundraising move, HEXO said it will use the net proceeds "for working capital and other general corporate purposes, including funding the Company's research and development to further advance the Company's innovation strategies."
Not the first time at the well
Like peer marijuana stocks, most of which are struggling and are habitually unprofitable, HEXO has raised capital several times in its brief existence by issuing securities such as stock and convertible debentures. In so doing, it has increased its share count more than threefold in barely over two years.
To put it mildly, the market did not take this news well. HEXO shares closed Thursday almost 22% lower than the previous close -- and this was on a day when most key stock indexes went up.
Investors likely had several concerns about this new round of fundraising. First, there is the standard fear of dilution; combined, the new shares plus the warrants (if exercised) would dilute the outstanding share count by almost 9% -- enough to make a tangible impact. Second, that $1.67 per-share price tag is 15% lower than HEXO's closing price on the previous trading day.
And third, although it's not necessarily unusual for a company issuing shares to add sweeteners like warrants, it can be worrying; it may be a sign that a business is having trouble drumming up interest for a straightforward share issue, and must include something extra in order to sell it effectively.
HEXO said it expects the issue will close "on or about" Monday, Dec. 30.