The Althea Group Holdings Ltd (ASX: AGH) share price has been a poor performer on Monday and has started the week deep in the red.
In afternoon trade the cannabis company’s shares are down almost 6% to 40 cents.
Why is the Althea share price under pressure?
This morning the company released an update on the share purchase plan component of its capital raising.
This follows the successful completion of its $6 million institutional placement last week, which was undertaken at 44 cents per new share. The offer price represents a 10.2% discount to its share price at the time of the capital raising announcement.
Today’s announcement reveals that the company is pushing ahead with its share purchase plan, with the aim of raising a further $3 million from eligible shareholders.
However, given that the Althea share price is now changing hands for 40 cents, the share purchase plan’s offer price of 44 cents per new share isn’t looking very attractive at all.
What does this mean?
Althea has already advised where it plans to deploy the funds from the capital raising.
$2 million is going towards sales & marketing activities, a further $2 million is being used to build inventory, $1 million is being used to support its Althea Concierge platform, $3.7 million is being allocated for research & development activities, and $0.3 million is to cover fees.
Given that the capital raising is not being underwritten, there’s a real possibility that Althea will now fall short of its target and be forced to scale back its plans.
Though, with the share purchase plan opening today and not closing until 15 January 2021, there is plenty of time for the Althea share price to improve and make the offer more attractive to shareholders. Though, only time will tell if that proves to be the case.
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More reading
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- Cannabis share Althea (ASX:AGH) sinks 11% on capital raising and Aphria selldown
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- Why cannabis company Althea (ASX:AGH) is storming higher today
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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