Cannabis company Hexo Corp. has postponed its fourth-quarter earnings release as it announces a $70 million private placement of convertible debentures led by a group of investors, including its chief executive.
The Gatineau, Que.-based company said Wednesday that in light of the financing and additional time needed to finalize its year-end filings, Hexo will push back its earnings release to Oct. 28 and its conference call to Oct. 29.
Hexo said in a release that it has entered into subscription agreements with a group of investors, directors and other long-term shareholders, that have agreed to purchase on a private placement basis $70 million of unsecured convertible debentures of the company.
The group of investors includes its CEO Sebastien St-Louis, as well as board members Dr. Michael Munzar, Vincent Chiara, Nathalie Bourque and Adam Miron, the company said.
“The confidence in HEXO Corp that this $70 million private placement demonstrates is a testament to the value the company is expected to bring to shareholders,” said St-Louis in a statement.
“We remain focused on garnering significant market share, driving growth, and in shaping this company into a mature, resilient and valued leader in our industry.”
The company said it intends to use the net proceeds of the private placement for working capital and general corporate purposes.
After closing, the debentures will bear eight per cent interest and mature three years after its issuance, while after one year holders have the option of converting them into common shares of Hexo at a conversion price of $3.16. Shares of Hexo, which were halted earlier pending news, closed up roughly 3.5 per cent to $3.51 on the Toronto Stock Exchange.
Hexo was scheduled to release its fourth-quarter and full year results on Oct. 24, and earlier this month the cannabis company reduced its net revenue forecast for the fourth quarter to between $14.5 million to $16.5 million, down from roughly $26 million it had signalled previously.
The pot producer also said it was withdrawing its previously issued outlook for its 2020 financial year. In June, Hexo had issued guidance of up to $400 million in net revenue in its 2020 financial year.
“Having members of senior management and the board of directors put their money where their mouth is should provide some confidence to investors regarding Hexo’s current valuation and the optimism that the insiders have going forward,” said John Chu, an analyst with Desjardins in a note to clients.
The debentures raise announcement on Wednesday can be viewed both positively and negatively, said Owen Bennett, an analyst with Jefferies.
Given the backdrop of sector-wide negative profitability and high rates of cash burn, and access to cash now not what it was 12 months ago, this financing adds $70 million to the $188 million in cash the company has on hand, he noted.
This “can be seen as encouraging and gives a bit more near-term certainty,” Bennett said in a note to clients.
However, the negative slightly outweighs the positive, he added.
“If the company had conviction in its near-term outlook and was able to sell this conviction to investors successfully, it would not be agreeing to a conversion below yesterday’s close and below the 52-week lows, in our view.”