Cannabis Consolidation Continues with Hexo Zenabis Deal
Hexo Will Acquire Zenabis for $235 Million – LPC
The cannabis consolidation movement in Canada marked another milestone. Hexo Corp. announced that it will acquire Zenabis Global Inc. for $235 million. Hexo claims the deal will help it strengthen its market position in Canada and globally, particularly in the US.
“Hexo’s growth strategy includes expanding our global presence,” said Hexo CEO Sebastien St-Louis. “This acquisition is an important step in that direction.”
“Like Hexo, Zenabis believes that the combination should deliver meaningful synergies, a stronger financial position with increased flexibility,” said Zenabis CEO Shai Altman. “[The consolidation] should position the combined company to meet growing consumer demand on a national and international basis.”
Under the agreement Tuesday, shareholders of Vancouver-based Zenabis will receive 0.01772 of a Hexo common share in exchange for each Zenabis common share held.
Hexo has been at the forefront of the cannabis industry since the beginning. It was one of the first licensed producers in Canada to secure a supply deal for recreational cannabis. Hexo also was one of the first to undercut the illegal cannabis market. In August 2020, its “Original Stash” sold for $4.49 per gram.
Hexo has not been without its controversy. In 2019, Health Canada suspended Hexo’s licences for growing cannabis in unlicensed spaces.
Cannabis Consolidation “Not Surprising”
Cannabis analysts are not surprised at the recent rash of cannabis consolidation deals.
“It is a major transaction but not surprising,” said Jay Rosenthal, co-founder and president of Business of Cannabis. “These things are going to happen more and more frequently as the market – certainly in Canada – shakes out, but as more opportunities happen around the globe.”
Rosenthal said that those opportunities “most notably” are in the US. There, three more states legalized cannabis in November. And although Biden’s cannabis policy is still a mystery, there is optimism that cannabis will soon be legalized federally in the US.
Canadian cannabis companies won’t be able to sell directly to US markets anytime soon. But there are other plays. For example, Canopy has the option to buy Acreage Holdings in the US after legalization. Hexo itself is partnered with Molson Coors to market cannabis beverages under the Truss Beverage Co. moniker.
Analysts Forecast Cannabis Consolidation Years Ago
Besides, some analysts say, cannabis consolidation is an expected, natural progression in a new and growing market.
“There’s [a large number] of cannabis companies,” said Matt Bottomley, director of equity research at Canaccord Genuity Inc., in February 2019. “In Canada, we have three telecom companies, five or six banks. We don’t need 100 cannabis companies.”
More recently, Tilray and Aphria announced a merger in December that will create the world’s largest cannabis company. “The next big prize is the United States,” said Tilray CEO Brendan Kennedy. But don’t count out the rest of the world yet. With countries like France and Australia leaning towards cannabis legalization, cannabis may soon be a truly global market.
Cannabis consolidation is not only inevitable, it’s ultimately a good thing. Canadian companies lead the world in cannabis sales right now. But if the American market opens up at ten times the population of Canada, they will have a hard time competing. But by merging and growing and maturing in the global markets, Canadian licensed producers will have a much better chance of dominating the world cannabis trade.
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