Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) entered into an agreement with an institutional investor for a convertible debt issuance worth $150 million, which provides access to needed capital but further dilutes shares for existing shareholders.
The debt issue comes in two tranches and is classified as senior unsecured debentures, with up to around 98.9 million Canopy shares convertible before the Feb. 28, 2028, maturity date.
“Canopy Growth is executing a strategy focused on accelerating growth and profitability by transforming our Canadian operations and fast-tracking entry into the U.S. market,” CFO Judy Hong said in a statement on Tuesday.
The offering tranches bear an interest rate of 5% per annum and have a conversion price of 92.5% of the volume-weighted average price of CGC shares traded during the three days before the conversion.
The initial $100 million installment is expected to go on sale Tuesday, while the second $50 million portion will be issued if certain conditions are satisfied, the company wrote.
Canopy estimated $95 million worth of net proceeds from the first tranche and $48 million from the second. The company intends to use the proceeds for working capital and general corporate purposes.
“Building on other recent actions taken to enhance cash flow, this attractive capital immediately adds to Canopy Growth’s cash on hand and provides additional flexibility to continue advancing strategic priorities,” Hong added.
“Our net tangible book value as of Dec. 31, 2022, was approximately US$803,842,960, or US$1.62 per Common Share, based on 494,891,390 Common Shares outstanding as of that date. After giving effect to (i) the sale by us of all US$150,000,000 in principal amount of Debentures offered hereby at an offering price of US$1,000 per US$1,000 in principal amount, and the deduction of the estimated offering expenses payable by us, and (ii) a hypothetical conversion of all of the Debentures at a conversion price equal to US$2.32 per Common Share, which is 92.5% of the closing price of our Common Shares on February 17, 2023, our as adjusted net tangible book value as of December 31, 2022, would have been approximately US$946,842,960, or US$1.69 per share.”
“This represents an immediate increase in net tangible book value of US$0.07 per Common Share to existing shareholders and immediate dilution of US$0.63 per Common Share to a new investor purchasing our Common Shares at the assumed conversion price.”
The Canadian giant reported a 28% decline in quarterly revenue earlier this month, ushering in a new cost-savings era that has included wind downs of operations and layoffs across the payroll.
Canopy has been looking for ways to legally venture into the U.S. cannabis space as the Canadian legal marijuana market suffers from its own slew of issues, with three pending U.S. acquisitions ponied up for eventual federal legalization.
The Nasdaq-listed operator eventually grew tired of waiting, and in October said it planned to consolidate the financials of its three pending deals under a new U.S.-based umbrella, though questions remain as to whether major exchanges will ultimately allow the adjustment.