HEXO Corp. (TSX: HEXO) (NYSE: HEXO) is acquiring Newstrike Brands Ltd. (TSX-V: HIP) in an all-stock deal valued at approximately $263 million. Newstrike shareholders will receive 0.06332 of a HEXO common share in exchange for each Newstrike common share held. There is a $7.5 million termination fee.
Newstrike is the parent company of Up Cannabis Inc., a licensed producer of cannabis that is licensed to both cultivate and sell cannabis in all acceptable forms. Newstrike, through Up Cannabis and together with select strategic partners, including Canada’s iconic musicians The Tragically Hip, is developing a diverse network of high-quality cannabis brands
“We’re thrilled to welcome the Newstrike team into the HEXO family. Jay Wilgar, CEO of Newstrike and his team have built incredible relationships, including teaming up with The Tragically Hip, and they share HEXO’s vision of bringing exceptional branded cannabis experiences to adults everywhere,” said Sebastien St-Louis, CEO, and co-founder of HEXO Corp. “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.”
Based on the completion of this acquisition, HEXO estimates that for fiscal 2020 the net and gross revenues from the sale of cannabis in Canada will be in excess of $400 million and $479 million respectively.
“This is the most compelling combination we see in the Canadian cannabis sector. 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. I believe this transaction is beneficial to our shareholders, customers, and employees. We look forward to working closely with the leadership team to complete this transaction,” added Jay Wilgar, CEO of Newstrike.
According to the company statement, the acquisition highlights include:
- Capacity boost with state-of-the-art cultivation infrastructure: The Transaction gives HEXO the capacity to produce approximately 150,000 kg of high-quality cannabis annually. The Transaction also provides HEXO access to four cutting-edge production campuses totaling close to 1.8 million sq. ft. of near-term cultivation space and diversified growing and production techniques. This is in addition to HEXO’s 579,000 sq. ft. facility for a manufacturing and product development center of excellence in Belleville, Ontario.
- Diversified domestic market penetration: Combined, HEXO, and Newstrike have established distribution agreements in 8 provinces including Ontario, Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, and Prince Edward Island, allowing broad consumer access to HEXO’s products across Canada.
- Premium indoor facility: Newstrike’s licensed indoor facility provides HEXO with access to diversified growing techniques and positions HEXO for flexibility for international exports as global cannabis markets continue to open.
- Accretive synergies: The combined entity is estimated to realize annual synergies of $10 million, allowing HEXO to operate more efficiently with a commitment to continued excellence.