Auxly Cannabis (TSXV: XLY) announced this morning that it has received approval from the TSX Venture to reprice certain debt that is coming due in January at the option of debtholders. The debt, which currently totals $98.79 million in outstanding convertible debentures, will now have a conversion price of $0.74 per share, versus $1.55 per share.
The debentures were originally issued on January 17, 2018, as part of a total $100 million raise, one of the largest at the time. Auxly’s share price has continuously deteriorated since that raise however, resulting in the conversion of debt being out-of-the-money, and Auxly now being on the hook to repay said debt. At the time of issuance, it was generally assumed by the market that the debt would convert to shares at maturity, and all would be well.
However, only $1.20 million worth of debt has converted by this point in time, leaving Auxly in a bit of a pickle. Revenues have not materialized as expected, and until recently Auxly had no means of paying the debt off. A recent cash injection by Imperial Brands now makes that attainable, however in the current capital-tight environment facing the cannabis sector, Auxly appears to be doing what it can to reduce cash outflow.
Originally, the conversion of all $100 million worth of convertible debentures was expected to result in approximately 64.51 million shares hitting the entity. With the reduced conversion price of $0.74 however, the remaining debt is expected to result in a dilution event of 133.50 million shares, assuming all of the debt converts and not factoring in interest. This doesn’t include the ‘top-up’ shares that Imperial Brands is entitled to as a result of their purchase agreement.
With Auxly Cannabis closing yesterday’s session at a price per share of $0.74 however, it’s questionable whether or not debtholders will want to elect the conversion option, rather than just be paid out.
The irony in the event, however, is that Auxly is essentially asking for leniency from its debtholders – a month after it foreclosed on one of its own lenders.
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.