HIGHLIGHTS
- Flowr intends to raise $43.5-million in a bought deal underwritten by GMP Securities.
- The deal comes three days after Flowr cancelled a $125-million bank-led offering, due to “prevailing market conditions,” the company said.
- Flowr units will be priced at $4.10, a 15 per cent discount to where the company’s shares finished trading on Friday.
Three days after cancelling a $125-million financing that was supposed to be underwritten by a syndicate of large banks, The Flowr Corp. has announced a $43.5-million bought deal led by GMP Securities.
The new deal is priced at $4.10 a unit, a 15-per-cent discount to the price at which Flowr shares finished trading on Friday. A unit includes one Flowr common share and one share-purchase warrant exercisable at $5.
Flowr shares dropped 17 per cent on Monday, finishing the day at $4.00.
Flowr’s previous deal, which was meant to be led by Credit Suisse Group AG, Barclays PLC and BMO Nesbitt Burns, was cancelled due to “prevailing market conditions which were not conducive to the completion of the Offering on terms that would be in the best interest of Flowr’s current shareholders,” the company said in a statement on Friday.
The Kelowna, B.C.-based firm also said on Friday that it is re-assessing the timing of its planned Nasdaq Stock Market listing, amid a broad sell-off in cannabis stocks and a hit to investor confidence caused by Health Canada’s investigation into CannTrust Holdings Inc.
Credit Suisse was part of a syndicate of banks that underwrote a US$195.5-million CannTrust financing in May, shortly before the company received a non-compliance order from Health Canada for illegal growing activity, causing CannTrust stock to drop more than 40 per cent.
As with the previous unsuccessful offering, Flowr intends to use the proceeds from the new financing to expand its facilities and to finance the acquisition of Portuguese cannabis firm Holigen Holdings Ltd., of which Flowr already owns 20 per cent.
However, market activity over the past month suggests there may be little interest among investors in the Holigen deal, wrote Ryan Tomkins, an analyst with investment bank Jefferies International Ltd., in a research note on Monday.
“With the equity offering being pulled as there was little appetite, and underwriters only willing to come in at this level with warrants exercisable at not much greater, it suggests very little conviction in the Holigen deal,” Mr. Tomkins wrote.
"The fact the company is taking the money at these terms possibly confirms near-term concerns around cash. The market may start to wonder, therefore, in the absence of further funding, will Flowr be able to invest as they would have hoped behind growth (remember they wanted C$125mn, not C$43.5mn)?” Mr. Tomkins added.
Flowr declined to comment on Monday’s announcement. The deal is expected to close around Aug 8.
Mark Rendell