Hexo to raise $40M in new financing

Sebastien St-Louis
Hexo CEO Sebastien St-Louis.

Gatineau cannabis producer Hexo says it is planning to raise $40 million in an underwritten public offering that’s expected to close early next week.

Hexo (TSX:HEXO) says a group of underwriters led by Canaccord Genuity Corp. and Canaccord Genuity LLC have agreed to purchase 52 million units, each consisting of one common share and one purchase warrant for an additional share that can be exercised within the next five years. The price is 77 cents per unit.

The underwriters also have a 30-day option to purchase up to an additional 7.8 million units under the same terms and conditions.

The pot producer said in a statement it plans to use the funding for working capital and “other general corporate purposes.”

The move comes at a time when Hexo is struggling to find its footing in the Canadian cannabis market.

Late last month, CEO Sebastien St-Louis told analysts the global COVID-19 pandemic “presented significant challenges” for the Gatineau company. 

While governments in many provinces, including Ontario and Quebec, are still allowing cannabis sales, St-Louis said that restrictions put in place to help stem the spread of the virus will have a material impact on Hexo’s earnings. The CEO also noted that job losses throughout the Canadian economy could dry up cannabis sales in the weeks and months ahead.

Even before the pandemic began to batter the Canadian economy, Hexo was facing a tough road ahead.

Although the company reported a 17 per cent bump in net revenues in the second quarter compared with a year ago, it also posted a net loss of $298.2 million. The losses were largely connected to a one-time impairment charge of $138.3 million from the closure and impending sale of the company’s Niagara production facilities, acquired through the firm’s $263-million acquisition of Newstrike Brands last year.

The Newstrike acquisition was aimed at making Hexo a market leader, but St-Louis told analysts the slower-than-expected rollout of retail licences in Ontario and Quebec, as well as a delay in regulatory approvals to sell cannabis-derivative products, had substantially affected Hexo’s ability to execute on its plans.

Hexo shares were trading at 71 cents on the Toronto Stock Exchange Thursday morning, well off their 52-week high of $11.29. The company’s shares fell more than 25 per cent after it announced the public offering on Wednesday.