Organigram Seeking To Pay Debt, Boost Capital Through $60-Million Offering
MONCTON – Organigram is looking to raise new money through a secondary financing deal with a group of underwriters led by Canaccord Genuity.
The licensed cannabis producer announced that the syndicate of investment firms and broker-dealers led by Canaccord has agreed to buy 32.5 million shares at a price of $1.85 (Canadian) per unit, for a total of more than $60.1-million.
The deal, expected to close on November 12, also grants the underwriters a 30-day option to buy up to 15 percent more of the shares offered under the same terms and conditions.
The company, with shares traded on the Toronto Stock Exchange, said in a press release Tuesday that it plans to use the proceeds to pay down debt, and “for working capital and other general corporate purposes.”
Organigram’s stock price fell more than 24 percent on Tuesday, closing at $1.58 on the Toronto Stock Exchange. Its market cap now sits at over $307-million.
Mathieu Roy, VP of equities at Moncton and Halifax-based Louisbourg Investments, says often companies give a discount on their shares to raise new money. Typically, the smaller the company, the larger the discount.
The $60.1-million price is a “fair” price for Organigram, Roy says.
“I think the idea would be to offer a price that would be attractive enough to bring in new shareholders, that sort of explains the drop in price [Tuesday] because you have the ability to buy new shares at this attractive price,” he said.
“That’s why in the secondary market and the trading today, you’re seeing that being reflected. Investors are not willing to pay more than the price that the new shares are being offered at.”
He says the additional financing Organigram is looking at isn’t surprising.
“If you think about the cannabis space, it’s a new market, a growing market, but it’s one that requires a lot of investments – new manufacturing facilities and capabilities, and you can do that with equity and debt. Organigram, like many of its comparables, has been using equity and debt to build their facilities and get more production,” Roy explains.
The deal “replenishes its balance sheet with additional cash” and puts it in a more comfortable position to invest in growth projects.
Roy says while Louisbourg Investments doesn’t formally cover Organigram, the firm does follow the cannabis industry as a whole and pays closer attention to Organigram as a local company.
Roy observes that the excitement that comes with the newness of the cannabis sector has simmered.
“For some time, it was a very expensive industry where the market was very excited about it and we felt it was getting, maybe a little ahead of itself in terms of paying for those growth prospects. I would say in the last year, maybe a little ore, that enthusiasm has tempered,” he said.
“I think you’re looking at some pricing in the market that’s a little more realistic and perhaps at some point, it could be an area of investment for us, but it just hasn’t been to this point.”
Inda Intiar is a reporter for Huddle. Send her story suggestions: [email protected]