Cannabis producer HEXO (TSX: HEXO)(NYSE: HEXO) I submitted a new regulatory form last Thursday. This will allow the company to raise up to $ 1.2 billion in new equity capital over the next two years.Filing called Base shelf prospectus, The company may issue batches of new shares at any time within the next 25 months.
Before the latest filing, HEXO Allowed previous base shelf outlook to expire in December.. At that time, the company didn’t need any new funding. Given the current operational needs, we have sufficient funding and liquidity. A new $ 1.2 billion stake is imminent, but what has changed?
HEXO looks to new growth projects
Last week’s filling revealed that management plans to use new equity for capital projects, potential future acquisitions, potential international expansion, general corporate use, and debt repayment. But the most striking thing is the clear mention of the expansion into the United States. The expansion of the United States is simply part of the international expansion. However, management has decided to make it clearer that it wants to be involved in the business south of the border.
HEXO has been in advanced negotiations with world-class Fast-moving Consumer Goods (CPG) companies. The company promised to reveal the results of these discussions at a conference call in March. The market is still waiting for the announcement of the deal. The latest $ 1.2 billion base shelf prospectus filing means the company expects some big partnerships.
Growth stock Usually new funding is needed. HEXO’s new project will require new capital.
Where does the capital go — US or Canada?
The company recently obtained an additional license for a center of excellence manufacturing facility in Belleville, Ontario. HEXO will be able to sign on to its new Canadian partner on the Powered by HEXO platform and sign contracts with new royalties. But at this point it is doubtful that the company will be able to invest a lot of money in Canada. Its Canadian platform is properly configured and ready to run.
Given the increasing focus of management on the US CBD market, great news is expected at the forefront of US-led international growth.After successful establishment Keystone Isolation Technologies The Canadian joint venture plans to build a similar cannabinoid extraction facility in the United States.
The latest of the company Management discussion and analysis The (MD & A) was submitted in March and management said: We believe that partnering with a large, well-established global CPG company that wants to enter the cannabinoid industry as a means of branding will provide shareholders with maximum long-term value. “
HEXO USA was founded with a hemp-focused business. The company has partnered with Molson Coors to launch CBD products in Colorado. As it expands through partnerships in the United States, it has the potential to sign some larger names in new hemp product development. Investors must be bullish.
That said, I’m worried that the company is raising too much money.
Be careful of dilution!
The company doesn’t necessarily raise $ 1.2 billion in a single large transaction, but its current shareholders are facing significant dilution. The $ 1.2 billion is too much for a $ 800 million company to raise. A new investor can bring capital 1.5 times the present value of the company. The interests of current shareholders and their influence on the company run the risk of being significantly diminished. Stakeholders will need to participate in future periodic share issuances in order to maintain their voting influence.
Management seems to be very ambitious about plans to grow the business.
That said, dilution isn’t a big concern, as long as new equity helps bring new growth opportunities to management. Therefore, the decision to buy more HEXO shares to dilute shareholders is two: confidence in management and appraisal of US regulatory changes, and market potential for increased revenue and cash flow growth. Affected by the element.
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Stupid contributor Brian Paraza There are no positions in any of the listed stocks. The Motley Fool recommends HEXO.
HEXO Raises $ 1.2 Billion: Where Will Cash Be Invested?
https://www.fool.ca/2021/04/21/hexo-to-raise-1-2-billion-where-will-the-cash-be-invested/ HEXO Raises $ 1.2 Billion: Where Will Cash Be Invested?