Gatineau pot producer Hydropothecary to raise $130M in public offering

From left to right, Hydropothecary's team includes chief brand officer and co-founder Adam Miron, CFO Ed Chaplin and co-founder and CEO Sébastien St. Louis. Photo by Mark Holleron.

Hydropothecary says it’ll soon be ready to tackle the national marijuana market after raising the largest deal of its kind in Canadian cannabis history.

The Gatineau-based pot firm announced Monday that it will raise $130 million in a bought-deal placement underwritten by long-time financing partner Canaccord Genuity, amongst others. Hydropothecary (TSX-V:THCX) first announced a $100-million offering this morning but increased its value shortly afterwards due to high demand, the company says.

The deal contains an over-allotment option which, if exercised, would bring the total financing to roughly $150 million. Hydropothecary expects the deal to close on or around Jan. 30.

Once closed, this would appear to be the largest public equity deal in Canadian cannabis. The move steals the thunder from Leamington, Ont.-based Aphria (TSX:APH), which closed a similar $115-million round just last week.

The new financing is about investing in new products and tackling the national pot industry, CEO Sébastien St. Louis tells OBJ.

“With the capacity the markets are giving us … now we can start to turn our attention to the rest of Canada,” he says.

Production ready

Hydropothecary’s first goal was always to dominate the Quebec market. While St. Louis says the firm’s home province is still the primary focus, his attention now turns to national distribution opportunities. He expects Hydropothecary will be finding strategic partners across Canada to enter new markets this year.

In October, St. Louis said the firm expects to capture 10 per cent of Canada’s cannabis market before expanding internationally, a goal he says will be possible through this financing.

Last month, Hydropothecary announced the construction of a massive new greenhouse. Slated for completion this December, the new facility will bring the firm’s Gatineau footprint to roughly 1.3 million square feet and increase production capacities to 108,000 kg of dried cannabis annually.

That’s it for new facilities for now, St. Louis tells OBJ, though there’s “tons of land to continue to expand” in Gatineau if need. It’s not the current focus, but he says any additional production demands could likely be covered through mergers and acquisitions.

Hydropothecary also claims to have the lowest production cost per gram of cannabis in the country at $0.89. That edges out $0.95 for Aphria and $1.25 for Smith Falls-based Canopy Growth (TSX:WEED), according to reporting at the close of their most recent quarters.

Branching out

Hydropothecary’s other focus is not on the quantity of cannabis it can produce, but in the variety of products it can bring to market. The firm wants to cater to consumer needs beyond smoking: St. Louis mentions dry cannabis pills, cannabinoids and the firm’s own liquid spray as likely areas of investment.

“It’s about investing in product formats that allow customers to choose a smoke-free option that is pleasant to consume,” he says, and then distributing it to as many consumers as possible.

While St. Louis has confidence in the federal government’s timetable for the legalization of recreational cannabis and gives his kudos for the global leadership role Canada has taken on pot, he says he’d like to see more done in terms of making these alternative products available.

“I would like them to show more flexibility for licensed producers to bring quality products, especially non-smokeable options, to consumers,” he says.

For St. Louis, this financing deal is a mark of approval from investors. Combining this fundraising with its relatively affordable stock price and the lowest production costs in the country, he says, sets Hydropothecary up for a strong year.

Shares of Hydropothecary were trading at $4.15, down roughly 5 per cent on the day. Instead, it was Aphria and Canopy Growth who had strong days on the market, up 14 and 17 per cent respectively, rebounding from an early-year dip.