Hexo Confirms Zenabis Financial Trouble

HEXO Corp. (NASDAQ: HEXO) acknowledged today that its wholly-owned subsidiary, Zenabis Global Inc. has filed a petition with the Superior Court of Québec for protection under the Companies’ Creditors Arrangement Act in order to restructure their business and financial affairs. CCAA is basically the Canadian version of bankruptcy.

Hexo said that the CCAA petition is limited to the Zenabis Group and neither HEXO Corp. nor any of its subsidiaries, other than the members of the Zenabis Group, are petitioners or parties to the CCAA Proceedings.

In February 2021, Hexo bought all of Zenabis’ issued and outstanding common shares in an all-share transaction valued at approximately $235 million. The argument for buying Zenabis at the time was that the two could save $20 million in synergies. It would strengthen Hexo’s domestic brands and give them a foot inside the European markets. It would also give Hexo access to Zenabis’ cultivation facilities. Hexo did note in its latest earnings that third-quarter 2022 net revenues doubled when compared to the third quarter of 2021 as the result of the accretive sales contributed by the acquisitions of Zenabis Global Inc. and Redecan (acquired Q4’21 and Q1’22, respectively).

Hexo was already in trouble itself and last October management gave investors a reality check warning about its senior secured convertible notes issued on May 27, 2021.  In a statement, Hexo said, “While there exists a risk that significant cash outflows may be required over the next twelve months under the terms of the Senior Secured Convertible Note, the company has been working with the Holder to renegotiate the terms of the Senior Secured Convertible Note.” Then Tilray (NASDAQ: TLRY) came to its rescue when it said that it would buy Hexo’s remaining $193 million senior secured convertible note. The deal was expected to close by the end of May 2022. The Note will be amended to include conversion rights at a price of C$0.85 per Hexo Share, which would allow Tilray Brands to acquire a significant equity ownership position in Hexo and participate directly in its growth opportunities.

Just this week though Tilray changed the terms of the deal and bought Hexo at a lower price. Perhaps it saw the trouble at Zenabis and decided the price needed to be adjusted? Tilray stock was down slightly on the news of Zenabis.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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