Canopy Growth Shares Drop Amid Concerns Over New Stock Sale

Canopy Growth stock is experiencing another considerable decrease in value Tuesday, with its share price having fallen by 8.5% as of 1 p.m. ET, based on data from S&P Global Market Intelligence.

The decline followed an announcement released by Canopy before the market opened, detailing the company's intentions to issue new stock. This method of raising capital is not unusual for Canopy, but the proposed sale prices are notably lower than the stock's recent closing value, sparking investor concern.

New Stock Issuance Leads to Negative Investor Sentiment

The company disclosed that it had reached an accord with certain existing institutional investors to offload in excess of 6.99 million shares at a rate of $4.29 each. Considering the stock's closing price was at $5.04 just prior to the announcement, the new offering is priced at a steep discount of approximately 14%.

Questions Arise from Canopy's Latest Financial Move

There are several layers to the trepidation surrounding Canopy's recent decision to offer new stock. The discount is significant, and the additional worry is that the sale amount, expected to garner about $30 million, seems minor relative to the company's approximate $385 million market valuation.

For unprofitable companies that rely on growth, issuing stock to raise capital can be commonplace, and it's not rare for such stocks to be sold at a discount to institutional investors. However, the scale and the price of Canopy's stock sale are causing investors to feel uneasy, as they could interpret the move as a lack of confidence in the company's financial future or a potential overvaluation of its stock.

Canopy, stock, fundraising