Hexo's Shares Jump On $925M Acquisition Of Canadian Cannabis Producer Redecan, Strengthening Its Position In Adult-Use Market

HEXO Corp HEXOHEXO signed an agreement to buy the family-owned Canadian cannabis producer Redecan for $925 million in cash and stock.

What happened

The consumer packaged goods cannabis company entered a definitive share purchase agreement to acquire all shares of Redecan.  

Under the agreement, the purchase consideration of $925 million will consist of $400 million in cash, and $525 million in shares of Hexo, assuming a price of $7.53 per share.

After the transaction is finalized, shareholders of Redecan will own around 32% of Hexo’s shares on a pro forma non-diluted basis.

The transaction is expected to close during the third quarter, subject to receiving standard regulatory authorizations and shareholder approvals. It is already unanimously approved by Hexo’s board of directors.

Why It Matters

The Redecean acquisition will advance Hexo’s offering with various products across many categories. Redecan’s portfolio includes top-selling oils and capsules and also holds a high market share in the pre-roll category.

According to Hexo, the addition of Redecan will help the company become “a Canadian volume leader in dried flower across premium, mainstream and value price points.” The company is also expected to obtain a strong position in the cannabis-infused beverages space via Truss Beverages.

This purchase will enable Hexo to quickly reach positive earnings per share, as Redecan already had consistent “significant EBITDA” results with no debt.

Furthermore, the company will boost its product innovation activities and production capabilities.

Hexo is looking forward to exploring international opportunities, with plans to use Redecan’s original pre-roll product, proficiency in production and its popular brands as a way of expanding across Canada, the U.S. and Europe.

Financing

On Thursday, Hexo closed an offering of $360 million secured convertible notes due May 1, 2023 directly to an institutional purchaser and its partners. The company announced it plans to use all the proceeds from the offering to support the purchase of a Canadian cannabis producer.

A.G.P./Alliance Global Partners was the only placement agent to Hexo in relation to the offering.

“We articulated a plan to become a top three cannabis player in the Canadian adult-use market,” HEXO CEO and co-founder Sebastien St-Louis stated. “With today’s announcement, we believe that we are on the verge of surpassing that objective to become the no.1 licensed producer by recreational market share. Building on our strong market momentum, the combination of HEXO and Redecan reinforces our position as an industry leader and creates a robust foundation for growth, efficiency at scale and improved financial results.”

Price Action

Hexo’s shares were trading 8.14% higher at $7.06 per share at the time of writing.

Photo by Thought Catalog on Unsplash