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 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:
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.