Canopy has issued over 100,000 common shares to help cover the cost of a new investment. What does this mean for canopy shareholders?
Issuing common stock in the financial markets is an alternative to issuing debt. Rather than adding more debt to the company’s balance sheet, Canopy has decided to take a less expensive route and issue common stock. With the issuing of these common shares, Canopy does not need to make obligatory interest payments to investors and instead can make discretionary dividend payments when it has extra cash.
By selling additional common shares into the financial markets, Canopy has increased the number of outstanding shares. When the new shares enter the market, they dilute the ownership of existing shareholders. Once a greater number of common stocks are sold in the market, an existing shareholder’s ownership stake and voting influence diminish.
The company has made a move to free themselves of debt but has diluted the ownership of their current shareholders.