Congratulations in advance, marijuana stock investors, for surviving 2019. It was an indisputably awful year for publicly traded pot companies. All were squeezed on many fronts in a business that continues to endure acute growing pains.
There wasn’t much disastrous news in the final full week of the year, thankfully. Still, there were a few happenings of note to report, so let’s jump right into it.
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HEXO’s latest move — investor gift, or lump of coal?
HEXO (NYSE:HEXO) ticked one item off its holiday wish list this year — millions of dollars in fresh capital. This didn’t necessarily fill its shareholders with cheer, though.
This present came a day after Christmas, with the company announcing it reached agreement with institutional investors for $25 million in new proceeds, to be sold in a direct offering. For their money, the investors are receiving just under 15 million shares of HEXO common stock, plus warrants for almost 7.5 million more.
The company said it’ll use the dosh for that “general corporate purposes” category every equity-issuing company seems to prioritize, plus research and development activities.
This is an interesting contrast to the weed industry financing deal that came a few days before HEXO’s announcement — Curaleaf‘s (OTC:CURLF) four-year, $275 million loan from a syndicate of lenders. Curaleaf took pains to point out that, unlike equity financing deals, said loan will not be dilutive to existing shareholders.
This is a major concern in the cannabis sector, which is generally loss-making yet still hungry for expansion and scale — the key reason marijuana companies always seem to be scratching around for new funding.
But no one likes when the pool of a stock investment widens; HEXO’s new deal would dilute its outstanding stock by around 9% if all those warrants were exercised. Oof. No wonder its stock took a 20%-plus hit on the day the deal was announced.
Neither HEXO’s nor Curaleaf’s latest round of financing is particularly advantageous. The former’s will not only be dilutive, but it also suggests the company had little choice but to add an inducement like warrants to secure investors for this turn at the wheel. As for Curaleaf, its new facility bears a hefty nine-figure debt burden that will carry a high interest rate of 13%.
Still, in the current environment, any infusion of new capital is welcome. Both companies will certainly find plenty of uses for the money; here’s to hoping they spend wisely and carefully.
Aurora does the derivative dance
Cannabis 2.0 is upon us — well, if you live in Canada, anyway. This new phase of legal recreational use in our northern neighbor sanctions the sale and consumption of derivatives such as extracts, weed-laced drinks (as long as they don’t also contain intoxicants like caffeine or nicotine), vapes, and candies.
Cannabis 2.0 officially kicked off in October, but since derivatives makers were required to give the authorities 60 days’ notice before marketing their tasty new goods, products are only now being shipped.
Aurora Cannabis (NYSE:ACB) fired off one of the first salvos in what promises to be a colorful and eventful scrap over this market segment. The company said it made deliveries to 10 provincial authorities throughout the country, in a first step at getting its derivatives to market.
No one’s going to see Aurora’s weed gummies or pot chocolate in 2019, though. Its Cannabis 2.0 offerings won’t make it on to dispensary shelves until early in the new year, the company said.
Regardless, this gives marijuana stock investors in general something to look forward to. Any company active on the Canadian market is charging to grab a piece of the derivatives segment, and even the laggards should draw some revenue from the new category. Aurora is devoting plenty of capital and resources to this effort, manufacturing such products at three of its facilities throughout the country.