The ECS Botanics (ASX: ECS) share price has dropped 10% today after the company announced a capital raise. Let’s take a look.
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ECS Botanics Holdings Ltd (ASX: ECS) shares have slumped in late-afternoon trade following an announcement regarding a capital raise. At the close of trade, the ECS Botanics share price is down 10% at 5.4 cents.
Let’s take a look at what is driving the agribusiness and hemp food company’s share price down.
Why is the ECS Botanics share price falling?
The ECS share price falls as investors indicate displeasure with the company’s latest update that will perhaps further dilute shareholdings.
In today’s release, ECS advised that it has received strong commitments to complete a $4 million share placement. Offered at 5 cents apiece, sophisticated and professional investors have confirmed to partake in the company’s capital raising efforts.
In addition, a rights issue will be available to existing shareholders at 5 cents per share to raise an extra $2 million. For every 17 ordinary shares held, 1 new share can be issued.
The offer price represents a discount of 19% on the company’s 5-day volume-weighted average price of 6.2 cents. However, after today’s steep fall, the placement only offers a 10% mark-down.
This will be completed under the company’s listing rule 7.1, which allows 15% of its shares to be issued without shareholder approval. The placement of the shares from sophisticated and professional investors is expected to start trading on 24 March 2021. The rights issue timetable will be released later this week.
ECS said as well as providing additional working capital to accelerate growth, it would use the funds for several business affairs. This will include completing its acquisition of Murray Meds and purchasing plant and equipment.
In the next 6 months, the company plans to execute a raft of sales agreements and partnerships. Furthermore, it will seek to expand its Victorian and Tasmanian operations, further boosting manufacturing capacity.
What did the managing director say?
ECS managing director Alex Keach commented:
Having received shareholder approval for our acquisition of Murray Meds, we are excited to complete this transaction which positions ECS as the largest, lowest cost and most geographically diverse cannabis producer in Australia.
Murray Meds has executed several important supply agreements in recent weeks for medical cannabis dried flower, concentrate and final dose oils in Australia as well as Europe with several more expected soon.
The ECS share price has gained more than 160% since this time last year and is up over 40% year-to-date.
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Motley Fool contributor Aaron Teboneras 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.