Canadian cannabis company Hexo (NYSE:HEXO) has been a volatile stock of late. Indeed, like the entire cannabis sector, HEXO stock has gone through a period of fits and starts. Today, Hexo is seeing massive selling pressure, with shares down nearly 30% at the time of writing.
This move has turned Hexo’s return over the last year negative. Indeed, the beginning of this year saw a rush toward cannabis stocks. This “green rush” was bolstered by increasing optimism in this sector following President Joe Biden’s election win. A Democratic Senate majority victory also stoked hopes that some sort of cannabis-legalization bill would be put forward in short order.
While we’ve seen some movement on this front, by and large, investors appear to be factoring in a lower probability that we’ll see federal legalization any time soon. This appears to be partly due to the fact that Biden has been less enthusiastic about legalization as many of his counterparts further on the left-hand side of the political spectrum.
That said, there’s one big catalyst driving most of today’s price action in Hexo. Let’s dive in.
HEXO Stock Down on Equity Issuance
Cannabis companies have raised a ton of money to fund their growth. The vast majority of this funding has come from capital markets. That’s because many financial institutions don’t have the ability, or willingness, to lend to cannabis companies until legalization materializes.
Given Hexo’s current cash burn, the company has turned to equity markets again. Today, Hexo announced an equity offering of 47.5 million shares at $2.95 per share. This issuance, slated to close Aug. 24, is expected to bring in gross proceeds of around $140 million.
However, today’s move puts HEXO stock well below this threshold. Indeed, investors don’t seem to like the size of this offering and the fact that Hexo is unable to fund its operations with cash flows.
The company has noted that it intends to use these funds to finance its Redecan acquisition.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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