Ottawa-based Hexo has taken another step toward its goal of being a top-two Canadian producer of recreational cannabis with a $50-million deal to acquire Toronto’s 48North Cannabis.
Under the deal announced Monday, shareholders will receive 0.02366 of a Hexo common share for each 48North common share.
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.
Hexo CEO Sebastien St-Louis told OBJ the transaction came together quickly after the Toronto-based firm – which had sales of about $25 million last year – first put out feelers to his team about a potential deal less than two months ago.
“They’ve got a good reputation, great flower brands,” he said. “They’re punching above their weight from a distribution-in-Ontario point of view.”
St-Louis said 48North’s strength in topical CBD- and THC-infused creams and ointments was also a major selling point as Hexo looks to expand its product lines.
“This gives us proven technology in the cream space, which would be great if we ever get into conversations with large cosmetics manufacturers,” he said, noting his own mother uses 48North’s Apothecanna topical cream, which features equal amounts of active ingredients THC and CBD, for arthritis pain.
“When we had an opportunity to bring that into the fold, that was pretty cool.”
Within one year of closing, St-Louis estimates the deal could generate up to $12 million worth of accretive synergies through additional capacity utilization at Hexo's Belleville facility as well as cost savings through efficiencies in the combined sales and administrative operations.
He 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.
In February, the Ottawa firm announced it would buy pot company Zenabis Global for $235 million.
Eyeing European, U.S. markets
Zenabis already operates a lab in Europe, and St-Louis told OBJ earlier this year the company’s partnerships with European medical cannabis producers offer “multimillion-dollar export opportunities” that will lay the groundwork for even bigger sales once pot is legalized for recreational use on the continent.
Canadian producers have also turned their attention to the U.S., where President Joe Biden has spoken in favour of legalization and the Democratic party is pushing a bill that will allow financial institutions to work with cannabis companies without retribution.
To that end, Hexo said last week it’s agreed to buy a 50,000-square-foot plant in northern Colorado that will produce the active ingredients for THC-infused beverages manufactured in a joint venture with Molson Coors.
The site is zoned for the production of a range of cannabinoids, St-Louis noted, setting the stage for Hexo to forge partnerships with manufacturers of edibles as well as cosmetics.
"Ultimately, the driving force behind Hexo is to become a top-three global cannabis company."
He said the company is in “advanced discussions” with a couple of potential food partners and hopes to announce a deal “very soon.”
“What this facility in Colorado does is it … opens up a larger-scale presence for more partners in the United States,” St-Louis explained.
Hexo filed plans last month to raise as much as $1.2 billion over the next two years on public markets in Canada and the U.S. to help fund its expansion efforts.
“Strategically, the U.S. is a massive market,” St-Louis said. “We want to deploy quite a bit of money there.
“Ultimately, the driving force behind Hexo is to become a top-three global cannabis company. We’re now really close to achieving our goal of hitting top-two in Canada. We’re going to be updating that goal very soon to start to think globally. So it’s about the next big push.”
Hexo shares finished the day down 12 cents to $7.27 in trading on the Toronto Stock Exchange.
– With additional reporting from the Canadian Press