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 million Canadian dollars) via an at-the-market (ATM) equity program.
The Smiths Falls, Ontario-based company did not specify when it would issue and sell the new common shares “in concurrent public offerings in the United States and Canada,” nor did it disclose 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 announced on May 22 its plans to raise $250 million through an ATM.
Aaron Edelheit, CEO of California-based Mindset Capital, a cannabis-focused investment fund, likened announcing an ATM funding to “advertising in the market you will be continuing to issue equity, if given the chance.” He added, “It’s a regulatory maneuver that allows them to issue up to $250M in shares really quickly.”
ATMs enable a company to raise capital without presentations or conference calls with analysts and investors, explained Frank Colombo, a managing director at New York-based cannabis capital, M&A, and strategic advisory firm Viridian Capital Advisors.
Tilray, headquartered in Leamington, Ontario, with an office in New York City, stated that proceeds from its ATM financing could potentially be used to enter the U.S. market. In that regard, Canopy might already hold an advantage after announcing on Tuesday that it is moving ahead with its acquisition of American MSO Acreage Holdings, which operates in seven states.
Canopy shares fell sharply on the Nasdaq (CGC) following the announcement, dropping from $7.80 at the close of trading on Wednesday to $7.14 at midday Thursday, before closing at $7.40.
The company’s chief financial officer, Judy Hong, stated that Canopy “has one of the strongest balance sheets among major cannabis companies.” She added, “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.”
However, some analysts expressed skepticism. Like other publicly traded cannabis companies, Canopy has experienced significant volatility, 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 noted. He speculated that the company might be hoping for positive news on rescheduling to push the stock price back up, allowing them to capitalize on higher valuations.
ATM funding could work in favor of both Canopy and Tilray, especially if depressed assets in the U.S. market recover in value ahead of significant events like rescheduling or other marijuana reforms, including federal legalization or interstate commerce. Publicly traded cannabis companies might see boosts if the proposed reclassification of marijuana from Schedule 1 to Schedule 3 of the Controlled Substances Act occurs, which could happen as soon as this fall.
Once one of the most valuable regulated marijuana companies—with shares exceeding $500 in 2018 and another peak of $429 in February 2021—Canopy has struggled with debt and losses more recently. The company lost $483.7 million during the fiscal year that ended March 31, according to a U.S. Securities and Exchange Commission (SEC) filing, a significant improvement from the previous year’s staggering $3.1 billion loss. However, Canopy still holds nearly $600 million in debt, per the SEC filing.
It’s unclear how current Canopy shareholders will react to the news of an ATM raise, which could dilute their positions. Despite Canopy’s expanded U.S. footprint after the Acreage acquisition closes, potentially in early 2025, questions about the company’s viability persist. “I guess I’m just confused as to why anyone would invest more money in Canopy at this point,” Edelheit of Mindset Capital said. “Don’t they have to show they know how to operate?”
Acreage Holdings also faces significant challenges, being in default on some of its debt, which totaled $136 million at the end of March.
Canopy is also the subject of an investigation related to its “accounting policies and related matters,” according to its SEC filing. This investigation is connected to Canopy’s BioSteel energy drink, which the company sold off in December 2023 for $30.4 million. The company “self-reported” to the SEC that the “timing and amount of revenue recognition” of its BioSteel segment were under further review, leading to the ongoing investigation.
Despite these challenges, Canopy Growth Corp. continues to pursue strategic maneuvers to strengthen its market position and navigate the complex landscape of the cannabis industry.
