With a wave of consolidation sweeping across Canada’s cannabis industry, local pot producer Hexo is looking to raise up to $1.2 billion on the public markets to finance its ambitious expansion plans.
The Ottawa-based company said this week it has filed what’s known as a short-form base shelf prospectus with securities regulators in each Canadian province and territory and a corresponding document with the U.S. Securities and Exchange Commission. The documents are valid for 25 months.
In a nutshell, the moves allow Hexo to fast-track the process of issuing up to $1.2 billion worth of shares, warrants and other units to raise capital.
Hexo co-founder and CEO Sebastien St-Louis said the company is seeking “maximum flexibility” to make acquisitions and sign partnerships with players in related industries as it looks to extend its footprint in Canada and south of the border.
“We have now started to deploy capital in the United States, are remaining active in M&A and are in ongoing discussions with potential non-beverage (consumer packaged goods) partners which we expect will require additional capital as we continue to execute on our growth and expansion strategy,” St-Louis said in a statement.
The funding push comes just two months after Hexo announced a deal to acquire competitor Zenabis Global Inc. in a $235-million deal that will give the Ottawa firm a European foothold and strengthen its domestic business.
The transaction, which will see Hexo acquire two indoor growing facilities and get access to a greenhouse, comes as the Canadian pot market is starting to consolidate amid talk of potential U.S. cannabis legalization.
Already this month, fellow eastern Ontario-based cannabis producer Canopy Growth has signed off on a pair of its own acquisitions as it lays the groundwork for entry into the U.S. market.
Canada’s major cannabis players see huge upside in the U.S., where President Joe Biden supports decriminalizing pot, expunging criminal records related to its possession and the Safe Banking Act, a Democratic bill that would allow financial institutions to work with cannabis companies without retribution.
Path to profitability?
St-Louis told OBJ in February the company is on the path to becoming cash-flow positive, which will free up more capital for Hexo to “invest in the larger market south of the border” through efforts such as Truss CBD USA, its joint venture with Molson Coors to produce cannabis-infused beverages in states where they are legal.
He also said Hexo is in “ongoing discussions” with other Fortune 500 companies about potential partnerships in areas such as edibles.
“We’re never going to make the best chocolate in the world, but there’s no reason we can’t partner with the best chocolate company in the world, put our best cannabis technology in it, and then … make the best product possible for consumers,” St-Louis said.
In financial filings last month, Hexo reported a loss of $20.8 million in its latest quarter as its revenue nearly doubled compared with a year earlier. Net revenue totalled nearly $32.9 million, up from $17 million in the same quarter a year earlier.
Hexo shares were down 24 cents to $6.90 in late-afternoon trading on the Toronto Stock Exchange.