As we reported earlier this week, the big story for the cannabis capital markets has been a flood of new issues out of Canada. The largest deal, announced on Tuesday morning, is the Aphria (TSX: APH) (OTC: APHQF) offering of over 11mm shares at C$7.25 (C$80mm, with the potential to expand to C$92mm), which represented a 8.5% discount to the close on Monday.
One question investors may have had is why the big capital raise. The company didn’t really address this in the press release, where it offered a generic explanation:
The Company intends to use the net proceeds from the Offering for the development of infrastructure (including the purchase of capital and other equipment), the expansion of its geographic footprint in Canada and other strategic investments, and for general working capital purposes.
Today, though, Aphria filed a preliminary short form prospectus that provided substantial detail regarding the use of proceeds. After a 5% underwriting fee, the $76mm, which represents 26% of the balance sheet equity as of 8/31, will be used for:
Construction or acquisition of domestic production facilities, if required to support provincialism within the Cannabis Act, construction or acquisition of domestic retail facilities for distribution of cannabis under the Cannabis Act, in those provinces which may allow it, strategic investments to enhance the Company’s product offerings or cultivation capabilities, international strategic investments, including direct investment or construction or acquisition of production facilities in new markets, located in federal legal markets, all related to cannabis production facilities.
It further explained four specific reasons:
- It may need to set up additional facilities in other provinces in future adult recreational markets
- Its membership in the “Cannabis Co-operative” may require capital contribution. This organization includes more than a dozen LPs and is focused initially on operating retail distribution in Alberta
- It may develop a second 100-acre site in its hometown of Leamington
- It may pursue “attractive international investment opportunities outside of the United States”.
The bottom-line is that Aphria wanted to add to its war chest to cover many possible uses of cash in the future. The deal was priced at a premium to its last financing at $6.50 in May (C$86mm). Aphria stock, which was also pressured by the TSX policy statement released Monday, traded down significantly following the deal announcement, bottoming out at C$6.31 on Thursday before bouncing Friday:
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