With operating expenses increasing and revenues falling behind, the cannabis industry is gearing up for make-or-break Q4 and full fiscal year 2019 earnings reports. Quebec-based HEXO Corp (TSX: HEXO; NYSE: HEXO) is now pushing the company’s anticipated earnings call back to the end of the month in light of a new private placement. 

HEXO today revealed an agreement for insider investors to buy a $70 million private placement, representing a principal amount of 8% of the company’s unsecured convertible debentures.

Unfortunately, for HEXO investors the company looks like it had nowhere else to turn and is now stuck paying what is effectively 19% interest to keep the lights on.

The deal will dilute current shareholders by about 11% if converted, yet the stock was up 10% on the news. This is likely a market that is just relieved the company raised enough cash to keep operating for a a few more quarters.   

The investors in the deal are prominent board members Vincent Chiara, Nathalie Bourque, Adam Miron, and Dr. Michael Munzar, as well as Chief Executive Officer Sebastien St-Louis. 

Due to mature in three years, the placement includes a clause allowing the debentures to be converted into common shares after one year at a price of $3.16 per share, 10% below where the stock currently trades. The debt can be forcibly converted if the daily volume weighted average trading price hits $7.50 a share for 15 consecutive days. 

Typically the conversion price for debt deals is above the current stock price, giving us another reason to believe management was having trouble finding a better deal elsewhere.  

Discussing the fundraising’s anti-dilution feature set to kick in a year from now, CEO Sebastien St-Louis commented: 

The confidence in HEXO Corp that this $70 million private placement demonstrates is a testament to the value the company is expected to bring to shareholders. We remain focused on garnering significant market share, driving growth, and in shaping this company into a mature, resilient and valued leader in our industry.

HEXO also delayed their earnings call to next week and will not release earnings and host a webcast discussing fiscal 2019 earnings on Oct. 29. 

Insider purchases in an effort to boost shareholder confidence have become more commonplace in the second half of the year following a drop in cannabis stock prices. 

CEO Kevin Murphy of Acreage Holdings, Inc. (CSE: ACRG.U; OTCQX: ACRGF; FSE: 0ZV) bought 154,000 company shares back in July, while chairman Boris Jordan from Curaleaf Holdings, Inc. (CSE: CURA; OTCQX: CURLF) acquired 100,000 of his company shares earlier this month. 

Curaleaf also notably secured shareholder approval to extend an existing share lock-up schedule through 2021 that had been scheduled to end last week. 

HEXO has seen a sharp drop in its stock price since releasing its quarterly financial report back in June, plummeting from a high of $6.63 that month to today’s price of $2.69 a share. 

In an effort to get ahead of an impending price war with other licensed producers, HEXO also recently announced the launch of the Original Stash value brand priced at $4.49 a gram.