Ottawa-based Hexo said Monday that purchasing Toronto-based 48North will bring the company closer to its goal of achieving a top-two position in Canada for adult-use cannabis sales.
“48North’s innovative product portfolio complements Hexo’s existing brands which, combined with their additional market penetration, will further strengthen Hexo’s position in the Canadian market,” Sebastien St-Louis, Hexo’s chief executive and co-founder, said in a release.
Within one year of closing, he estimates the deal could generate up to $12-million worth of accretive synergies through reductions, additional capacity utilization at Hexo’s Belleville facility and selling, general and administrative savings.
Mr. St-Louis also believes the deal will help Hexo edge closer to reporting positive earnings and position the company to keep growing domestically and internationally.
Like many other Canadian cannabis companies, acquisitions have become a cornerstone in Hexo’s growth plan. It announced it would buy pot company Zenabis Global Inc. for $235-million in February.
Meanwhile, Tilray Inc. and Aphria Inc. merged, Canopy Growth Corp. snatched up Supreme Cannabis Co. Inc. and Ace Valley Cannabis and Sundial Growers Inc. said it will buy Inner Spirit Holdings Ltd.
48North announced in March that it would lay off about 20 per cent of its staff and end outdoor cultivation at an Ontario facility.
The company had been able to cultivate 12,000 kilograms at a cost of 25 cents s gram outdoors at its Good Farm location, while typical growers often spend $2 a gram on indoor cultivation.
Under the deal, shareholders will receive 0.02366 of a Hexo common share for each 48North common share.
It also “contemplates” Hexo providing 48North with a $5-million subordinated secured bridge loan with a six-month term to fund 48North’s short-term working capital requirements and includes a $2-million fee 48North will have to pay Hexo if the deal is terminated.
The deal has been unanimously approved by both company’s boards, but still needs the approval by a two-thirds majority vote by 48North shareholders.
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