Canopy Growth prepares to raise $250 million for marijuana investments

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Image of $100 bills hanging on a cannabis plant.

(Photo by Elroi/stock.adobe.com)

Days after exercising an option to acquire a U.S.-based marijuana multistate operator, onetime billion-dollar cannabis giant Canopy Growth Corp. is planning to raise up to $250 million (341.7 Canadian dollars) via an at-the-market (ATM) equity program.

The Smiths Falls, Ontario-based company did not say when it would issue and sell the new common shares “in concurrent public offerings in the United States and Canada,” nor did it specify a target sale price.

Canopy is the second major Canadian cannabis company to announce a raise via an ATM program in recent weeks.

Tilray Brands on May 22 announced its plans to raise $250 million through an ATM.

Aaron Edelheit, CEO of California-based Mindset Capital, a cannabis-focused investment fund, equated announcing an ATM funding to “advertising in the market you will be continuing to issue equity, if given the chance.”

“It’s a regulatory maneuver that allows them to issue up to $250M in shares really quickly,” he told MJBizDaily via email.

ATMs allow a company to raise capital without presentations or conference calls with analysts and investors, said Frank Colombo, a managing director at New York-based cannabis capital, M&A and strategic advisory firm Viridian Capital Advisors.

Tilray, which is headquartered in Leamington, Ontario, and has an office in New York City, said proceeds from its ATM financing potentially could be used to enter the U.S. market.

In that regard, Canopy might already hold an edge after announcing Tuesday that it’s moving ahead with its acquisition of American MSO Acreage Holdings, which has marijuana operations in seven states.

Mixed reaction to move

Canopy shares fell sharply on the Nasdaq (CGC) after the announcement, from $7.80 at the close of trading Wednesday to $7.14 at midday Thursday. The shares closed at $7.40.

The company’s chief financial officer, Judy Hong, said in a statement to MJBizDaily that Canopy “has one of the strongest balance sheets among major cannabis companies.”

“In the year ahead, we remain resolutely focused on growing profitably and driving continued momentum across our core businesses, as we position Canopy for long-term industry leadership,” she added.

However, some analysts were more skeptical.

Like other publicly traded cannabis companies, Canopy has been riding a roller coaster lately, with sharp gains and losses following sudden announcements such as news about the Biden administration’s marijuana rescheduling process.

“Stocks like Tilray and Canopy can often trade somewhat irrationally, almost like ‘meme’ stocks,” Virdian’s Colombo said, “and this gives the company flexibility to respond when they perceive their stock is overvalued.

“My guess is they are hoping some rescheduling news pushes the price back up to close to $14.88, where it was on April 30.

“At which point, the company would say, ‘You like it at $15; how much do you want?’”

Depending on the timing, ATM funding could work in favor of both Canopy and Tilray.

If depressed assets in the United States are available ahead of major events such as rescheduling, that could prompt the assets’ value to recover and boost the final haul from the ATM.

There’s also hope for further U.S. marijuana reform, including federal legalization or interstate commerce.

Publicly traded cannabis companies might expect boosts if the proposed reclassification of marijuana from Schedule 1 to Schedule 3 of the Controlled Substances Act comes to fruition.

That could happen as soon as this fall.

Less debt and losses, but still big

Once one of the most valuable regulated marijuana companies – with shares exceeding $500 in 2018 and hitting another peak of $429 in February 2021 – Canopy more recently has struggled with lingering debt and colossal losses.

However, the company has managed to reduce both.

Canopy lost $483.7 million during the fiscal year that ended March 31, according to a U.S. Securities and Exchange Commission filing.

Though that’s much less red ink than the previous year, when Canopy reported a staggering $3.1 billion loss, the company still holds nearly $600 million in debt, according to the SEC filing.

It’s also unclear whether current Canopy shareholders will be pleased by the news of an ATM raise, which has the potential to dilute their positions, analysts told MJBizDaily.

And even with Canopy’s expanded U.S. footprint after the Acreage acquisition closes – potentially in early 2025 – questions remain about the company’s viability, according to Edelheit of Mindset Capital.

“I guess I’m just confused as to why anyone would invest more money in Canopy at this point,” he said.

“Don’t they have to show they know how to operate?”

Acreage also has major questions as a going concern.

The company is in default on some of its debt, which totaled $136 million at end of March.

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Investigation ongoing

Canopy is also “the subject of an investigation” related to the company’s “accounting policies and related matters,” according to its SEC filing.

The investigation is related to Canopy’s BioSteel energy drink, which the company sold off in December 2023 for $30.4 million.

According to Canopy’s SEC filing, the company “self-reported” to the SEC that the “timing and amount of revenue recognition” of its BioSteel segment were under further review.

“As a result … the Company is the subject of an ongoing investigation in connection with the BioSteel Review.” the filing notes.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.