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HEXO to pick up Newstrike
Posted on Thursday, 14 March 2019 10:31
HEXO has reached an agreement to acquire Toronto-listed parent company of Up Cannabis, Newstrike Brands, for CAD 263.00 million (USD 197.16 million).
As we move further into the new year, Zephyr, the M&A database published by Bureau van Dijk, is showing that dealmaking in the marijuana sector is yet to slow down.
2018 was a significant year for the market and a number of sizeable deals have already been announced in 2019 including Harvest Health agreeing to buy US-based Verano Holdings for USD 850.00 million just days ago.
HEXO is the latest to strike an agreement, this time for a holding company that manages a licenced producer of cannabis that is developing a diverse network of high-quality brands.
The deal requires at least 66.0 per cent of the votes cast by shareholders, who will receive 0.06 of a common stock in the acquiror in exchange for every scrip held in Newstrike.
Closing is subject to security holder, court and stock exchange approvals and following completion, HEXO will control 86.0 per cent of the combined company with the target holding 14.0 per cent.
The acquiror expects that for fiscal 2020, net and gross revenues from the sale of cannabis in Canada will be in excess of CAD 400.00 million and CAD 479.00 million, respectively.
With the addition of Newstrike, HEXO will have the capacity to produce around 150,000 kg of high-quality cannabis annually.
Together, the groups will have distribution agreements in 8 provinces including Ontario, Quebec, British Columbia and Nova Scotia.
Jay Wilgar, chief executive of Newstrike, said: “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.”
The company, backed by rock band the Tragically Hip, is being targeted in the largest Canadian cannabis deal post-legalisation to compete with larger players Aurora Cannabis and Canopy Growth, which the Financial Post said together control just under 50.0 per cent of sales in the country.
Shares in HEXO closed up 5.8 per cent to CAD 7.83 following the announcement yesterday, which valued the group at CAD 1.55 billion.
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