Why the Althea (ASX:AGH) share price is sinking 10% today

The company’s shares are down heavily mid-week…

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The Althea Group Holdings Ltd (ASX: AGH) share price has returned to trading today only to get smoked by investors. The cannabis company provided an update to market on its latest capital raising efforts.

At the time of writing, Althea shares are down a sizeable 10.53% to 25.5 cents. In comparison, the All Ordinaries Index (ASX: XAO) is up 0.34% to 7,799 points.

What did Althea announce?

A reason for the steep fall in the Althea share price could be an impending share dilution by the company.

According to today’s announcement, Althea advised it has successfully completed an institutional placement, raising $10.64 million before costs.

Both new and existing institutional and sophisticated investors signalled strong interest to support Althea’s growth plans.

As a result, around 44.35 million shares will be issued to participating investors at a price of 24 cents each. This represents a 15.8% discount on the last closing price of Althea shares before going into a trading halt on 23 August.

Althea will use the proceeds of the placement to fund a range of growth initiatives across the company’s pharmaceutical business. This includes supporting further expansion in Australia, Europe, and other international markets. Furthermore, Althea will use part of the funds for general working capital expenses.

Althea group CEO Joshua Fegan commented:

We are very pleased to have received strong interest for this capital raising. The additional funding will fuel a range of strategic growth initiatives in our pharmaceutical business, and I’d like to take this opportunity to thank our new and existing shareholders for their support. We look forward to updating the market with news regarding our progress in established territories, as well as our ongoing international expansion.

About the Althea share price

Attributing to today’s loss, the Althea share price has given up 40% of its value since the beginning of 2021. Looking at a larger time frame, the company’s shares haven’t fared much better, down 30% over the past 12 months.

On valuation grounds, Althea has a market capitalisation of around $66.9 million, with approximately 262 million shares on issue.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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