Canada-based cannabis producer Tilray Brands, Inc. announced April 10 that it will acquire fellow Canadian licensed producer HEXO Corp. in a US$56-million deal.
The transaction, which furthers an existing strategic alliance between the two companies, is expected to close in June, according to a press release Tilray issued on Monday.
Tilray also announced Monday its financial results for the third fiscal quarter, which ended Feb. 28.
The company reported that its net revenue increased from $144.1 million in the prior quarter to $145.6 million in the third quarter. Distribution revenue increased to $65.4 million, up 5% from the prior year quarter.
Gross profit loss was $11.7 million, the company reported, while adjusted gross profit was $44.3 million. Gross margin was down 8%, while adjusted gross margin rose from 26% to 30% in the year-ago quarter, according to the press release.
Tilray reported that its adjusted cannabis gross profit increased from $18.0 million in the prior year quarter to $22.2 million, and its gross margin percentage increased from 33% to 47%.
The company also noted that it recorded a non-cash $1.1 billion net asset reduction that it attributes to higher interest rates and a decline in market capitalization. Tilray reported in the press release that the loss has no impact on its compliance with debt covenants, cash flows or available liquidity. The company reiterated that it expects to deliver positive free cash flow from operating segments in fiscal year 2023.
The acquisition of HEXO will position Tilray for continued growth in Canada, according to the press release.
“Looking ahead, we are focused on being the leading, most diversified cannabis lifestyle and CPG company in the world,” Tilray Chairman and CEO Irwin Simon said in a public statement. “Our strategy to deliver on this vision is centered on pursuing targeted growth opportunities, as reflected in our opportunistic acquisitions of both Montauk Brewing Company and HEXO, which has made significant strides in driving operating efficiency and improving profitability while continuing to invest in industry-leading brands. We are incredibly excited about our combined prospects moving forward with HEXO and expect a seamless integration of HEXO’s business into our efficient, built-to-last platform. At the same time, we will continue our relentless focus on cost and operational efficiencies and strengthening our industry-leading balance sheet to deliver sustained, profitable growth and shareholder value.”
The combined company resulting from the transaction is expected to strengthen Tilray’s position in Canada with 12.9% pro-forma market share, according to the press release.
The merger also benefits HEXO and its shareholders, according to a public statement from the company’s chairman, Mark Attanasio.
“Over the past year, HEXO established and has been executing on a rigorous cost-cutting and balance sheet optimization plan,” Attanasio said. “As we began working with Tilray last year, the value that could be achieved through the combination of our businesses in order to compete and drive profitable growth in the highly fragmented Canadian market was immediately clear. With the recent headwinds in the cannabis industry, our board determined that HEXO shareholders would benefit from being part of Tilray’s diversified business and from the strong plan in place they have to reinforce their industry leadership, continue to strengthen the top and bottom lines, and to drive value creation. With Irwin and his leadership team, we are confident that our brands will continue to grow and thrive as part of Tilray Brands.”
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