In Canada, the list of top-performing licensed cannabis producers is short and relatively stable. By simple output, Aurora Cannabis and Canopy Growth Corp. easily claim the No. 1 and 2 spots, respectively. Aphria, Tilray and The Green Organic Dutchman round out the top five.
Now, HEXO is planning a leap to this exalted echelon. The Quebec company announced its acquisition of Toronto-based Newstrike Brands, which will boost HEXO’s cannabis production capacity to some 150,000 kilograms annually. Newstrike Brands’ 1.8 million square feet of cultivation space will ultimately quadruple the footprint of HEXO’s current 579,000 square feet.
The deal marks the largest transaction signed between two Canadian cannabis producers to date. (The transaction is still subject to shareholder approval and regulatory agreements.)
In the event this definitive arrangement is executed, the deal will involve an all-stock transaction of $263 million. Newstrike shareholders would receive 0.06332 of a HEXO common share in exchange for each of Newstrike share.
“With Newstrike, we're adding talented employees and infrastructure to take HEXO to the next level on our journey to become one of the largest cannabis companies in the world,” Sebastien St. Louis, CEO and co-founder of HEXO Corp, said in a public statement. “We're extremely proud of our record of execution, and today are committing to achieving over $400 million in net revenue in 2020.”
The production capacity that HEXO (formerly known at The Hydropothecary) will now build into its business model follows St. Louis’ earlier promises to “embark on the journey of building a brand new market.” In 2018, HEXO management announced a joint venture with Molson Coors Canada to develop non-alcoholic cannabis-infused beverages—a product category that Health Canada will only begin to allow in the market sometime later this year. Included in that venture: research and development agreements that will be aided by a C$57.5-million public offering issued earlier this year.
The resulting independent unit was called Truss, and HEXO maintains a 42.5-percent stake in the venture. “When consumable cannabis is legalized in Canada, Truss will be ready to make its mark as a responsible leader in providing high-quality beverages for the Canadian consumers,” Truss CEO Brett Vye said upon the announcement of the joint venture.
Additional cannabis production capacity, through an acquisition of Newstrike Brands, plays right into that goal.
“This is the most compelling combination we see in the Canadian cannabis sector,” Newstrike Brands CEO Jay Wilgar said in a public statement. “Our strength in Ontario and English Canada clearly complements HEXO’s strong position in Quebec and creates an industry leader. The combination will deliver meaningful synergies, a stronger financial position with increased flexibility, and will position the combined company to meet growing consumer demand on a national basis.”
