Cannabis producer Hexo pitches stock consolidation to save Nasdaq listing

Struggling Canadian cannabis producer Hexo Corp. is asking shareholders to greenlight a reverse stock split in order to boost its shares and regain compliance with the Nasdaq’s continued listing standards.

Quebec-based Hexo was notified by the stock exchange operator on Jan. 25 it was not compliant with the continued listing standard, which stipulates that its shares maintain a minimum bid price of at least $1 (1.27 Canadian dollars) per share.

Shares of the company were trading at approximately 64 cents on Monday afternoon.

The share-consolidation plan was disclosed Monday in a regulatory filing.

Hexo is essentially seeking permission to reduce the number of shares by between half and 14 times and thereby raise the stock price back above the $1 threshold – which would allow the company to regain compliance.

Under the proposed share-consolidation plan, shareholders would receive one post-consolidation share for every 2-14 shares they currently hold.

If shareholders approved the arrangement, which will be put to a vote at a shareholder meeting in March, the board would determine the exact consolidation ratio, per the filing.

The filing also states the board could elect not to proceed with the consolidation even if it is approved.

In the Jan. 25 warning, the Nasdaq gave Hexo 180 calendar days – until July 25, 2022 – to regain compliance.

If the Nasdaq-traded shares do not rise to $1 for a minimum of 10 consecutive business days before that date, the company could be eligible for additional time to regain compliance if it meets the Nasdaq’s other initial listing standards, save for the $1 per share requirement.

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“The board determined that it is in the best interests of the corporation to obtain shareholder approval at the meeting to implement the consolidation,” according to the Hexo filing.

“The corporation cannot offer and is not offering any assurances that the consolidation, if implemented, will ultimately result in the corporation regaining compliance with the minimum share price listing standard.”

Pending approval by all parties – shareholders, the Nasdaq and the Toronto Stock Exchange, where Hexo shares are also traded – the company said it expects to implement the consolidation soon after the March meeting.

This is the second time Hexo has come under pressure by a major American stock exchange over its low stock price.

In 2020, the New York Stock Exchange warned Hexo that its shares, which had fallen below $1, did not meet its listing standards.

The Quebec company subsequently consolidated its shares and maintained the listing.

Six months later, Hexo announced plans to jump to the Nasdaq, which has lower listing fees.

ATB Capital Markets estimates that Hexo’s debt stands at about CA$402 million.

At least three other Canadian cannabis businesses are currently offside the Nasdaq’s continued listing standards: Cronos Group, Neptune Wellness Solutions and Sundial Growers.

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.