Tilray Brands Inc., a Canadian cannabis company, announced on Monday that it will acquire its rival Hexo Corp. in an all-share deal worth $56 million. The move comes after years of losses, stiff competition, and stalled federal reform in the U.S. that have weighed on the industry’s growth prospects.
The Details of the Deal
The deal, which was announced in Tilray’s third-quarter earnings release, is considerably below Hexo’s market cap of around $73 million. According to BNN Bloomberg, news of the possible deal surfaced earlier in the day, causing Hexo shares to plummet 23% after hours, while Tilray fell 4.7%.
Under the terms of the deal, Tilray would issue 0.4352 of its common stock for each outstanding Hexo share.
Hexo’s Chairman on the Deal
In a statement, Mark Attanasio, Hexo’s chairman, said, “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.”
Tilray’s Expansion Efforts
The deal comes after Tilray’s attempts to expand into Europe’s nascent medical cannabis markets and into craft beer and whiskey in North America. However, like the Canadian cannabis industry, the craft beer industry has also slowed.
During its third quarter, Tilray reported net sales of $145.6 million, down from $151.9 million in the same quarter last year. The company also reported a net loss of nearly $1.2 billion, or $1.90 a share, which contrasts with a profit of $52.5 million, or 9 cents a share, in the prior-year quarter. These results were worse than expected, with analysts polled by FactSet expecting sales of $150 million and a loss of 5 cents a share.
What Does the Deal Mean for the Industry?
The acquisition is the latest move in a trend of consolidation within the cannabis industry. Smaller companies have been struggling to compete with larger ones as the market has faced challenges such as regulatory issues, supply chain disruptions, and falling prices. This trend is expected to continue, with more mergers and acquisitions on the horizon.
However, the industry as a whole is expected to rebound as more countries legalize cannabis and medical research continues to uncover the potential health benefits of the plant.
Conclusion
The Tilray-Hexo deal is a significant development in the cannabis industry, marking another instance of consolidation in a market struggling with multiple challenges. As the industry continues to evolve and adapt, it is likely that more mergers and acquisitions will take place in the future. However, the long-term outlook for the industry remains positive, with increasing legalization and growing public acceptance driving growth and innovation.
COMMENTS