This Is What Investors Need To Know About About The Commonly Used “Shelf Offering”

One of the more interesting trends in 2021 is related to a substantial increase in the number of companies that are raising capital through huge shelf offerings. 

While we are favorable on this avenue for raising capital, our readers should analyze these offerings to understand how much of the shelf was purchased. Today, we have highlighted Canadian cannabis producers that have announced large shelf offerings and believe our readers should be aware of this trend. 

Aurora Cannabis to Raise up to $300 Million to Expand in the US

Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB) is the most recent Canadian company to file a prospectus supplement that establishes a new at-the-market equity program (ATM) to issue and sell up to $300 million (USD) of common shares from treasury. 

Aurora Cannabis expects the filing to provide maximum flexibility for it to make acquisitions of strategic cannabis assets. We expect the company to use the capital to enhance its leverage to the US and will monitor how the story advances from here. 

As of May 13th, Aurora Cannabis reported to have $525 million of cash on hand and we are favorable on how it has strengthened its balance sheet. The company said that with the cash on hand, it does not expect to need to access the ATM program without an accretive use of proceeds. 

A prospectus supplement to Aurora Cannabis’ short form base shelf prospectus (dated October 28, 2020) has been filed with the necessary securities commissions or regulatory authorities in Canada and the US. We find these types of filings to be insightful as they highlight the amount of capital that was raised from previously filed shelf based offerings. 

HEXO Changes the Structure of its $1.2 Billion Shelf Offering 

Last month, HEXO Corporation (TSX: HEXO) (NYSE: HEXO) announced a short form base shelf prospectus to offer up to $1,200,000,000 of common shares, warrants, subscription receipts, and units (or a combination of such securities). 

Less than a month later, the Canadian cannabis company filed a new preliminary short form base shelf prospectus for up to $500 million of debt securities (bonds, debentures, notes or other evidence of indebtedness ‎of any kind).

As part of the announcement, HEXO said it would lower the amount of equity that is being offered through the prospectus from $1.2 billion to $700 million. Through this approach, the company will be able to offer enough equity and debt to raise up to $1.2 billion and we find the change to be worth noting. Typically, we see these types of changes when there is not enough demand for the shelf offering or when investors want a less risky approach to investing in the business. 

HEXO plans to use the net proceeds for general corporate purposes, including funding ongoing operations and/or working capital requirements, to repay other indebtedness outstanding from time to time, expansion plans in the United States, capital projects and potential future acquisitions. We are favorable on some of these growth avenues and will monitor how the management team uses the capital to grow the business. 

Canopy Growth Files for the Largest Shelf Offering so Far this Year

Earlier this year, leading Canadian cannabis producer Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) filed a preliminary short-form base shelf prospectus that would allow it to raise up to $2 billion (C$2.5 billion) through the issuance of common shares, subscription receipts, warrants and units, over a 25-month period.

The shelf filing comes after Canopy Growth reported a substantial decrease in the amount of cash on hand as of 2020. At the end of 2018, the company had more than C$4 billion of cash on hand. In 2020, the amount of cash on hand was below C$1 billion. 

During the last year, Canopy Growth has made a few investments and acquisitions and we are monitoring how the story continues to advance. Going forward, we expect the leverage that it has to the US to serve as a major growth driver and this is an opportunity that we are closely following. 

If you are interested in learning more about companies that raising capital through shelf offerings, please send an email to support@technical420.com with the subject “Cannabis Capital Raises” to learn more. 

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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