Auxly Cannabis Group (TSXV: XLY) announced this morning that it would be receiving a significant investment from Imperial Brands PLC, marking one of the first such investments from a tobacco player into the cannabis sector. The news is the second this week wherein a significant investment has been made by an outside corporation into the cannabis industry, following Alimentation Couche-Tard’s significant investment into Fire and Flower announced yesterday.
Imperial’s investment into Auxly will come in a convertible debenture to the tune of $123 million, representing a 19.9% stake in the cannabis streaming company. The investment will also come with access to Imperial’s vaping innovation business Nerudia, along with global licenses for vaping technology. Furthermore, Auxly Cannabis will be the exclusive partner of Imperial Brands for any cannabis related operations globally.
The debentures themselves will be convertible on the basis of $0.81 per share, and will have a maturity date of three years. The debentures will bare an interest rate of 4.0%, which is payable annually on the last day of the year. Imperial Brands may convert the debentures at any time before the expiry date, and the firm has top-up provisions to ensure it maintains control of 19.9% of Auxly Cannabis.
“This investment from Imperial Brands will enhance Auxly’s ability to continue to deliver on our business plans and accelerate our growth initiatives to expand our portfolio of branded derivative products. The timing is ideal as we prepare to bring our portfolio of innovative cannabis products to the Canadian market following the legalization of edibles, extracts and topicals later this year.”Hugo Alves, President of Auxly
The large investment by Imperial Brands is critical to Auxly’s continued operations. Currently burning cash at a rate of more than $46.6 million per quarter, the runway was getting short for the company. While it had cash reserves of $165 million as of the last reporting period, this would not have been enough to get the firm through the next fiscal year.
Compounding the cash problem for Auxly, is a convertible debenture coming due for the firm on January 17, 2020. With over $94 million of the $100 million debenture still unconverted, it’s likely that the bulk of the debt will have to be paid off in the form of cash. With a conversion price of $1.55 per share, and warrants at $1.80, its unlikely that investors will be interested in converting any of the debt into company equity.
Auxly Cannabis is currently trading at $0.85, up 16.44% on the news.
Information for this briefing was found via Sedar and Auxly Cannabis Group Inc. The author is no position in this security and has no affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.