Hexo to acquire Zenabis for $235 million, gains a European pot market foothold

Hexo Corp. will acquire competitor Zenabis Global Inc. in $235-million deal that will give the cannabis company a European foothold and strengthen its domestic business.

“Hexo’s growth strategy includes expanding our global presence, and this acquisition is an important step in that direction,” St-Louis, Hexo’s chief executive and co-founder, said in a statement on Feb. 16.

The deal, 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.

Tilray Inc. and Aphria Inc. are set to merge later this year, after rumours suggested Aurora Cannabis Inc. was circling Aphria.

Under the agreement of Feb. 16’s, shareholders of Vancouver-based Zenabis will receive 0.01772 of a Hexo common share in exchange for each Zenabis common share held.

The companies said the ratio is a 19 per cent premium based on the 20-day volume-weighted average price of Zenabis’ and Hexo’s common shares.

Hexo believes its deal will help the company go head-to-head with these rivals, access the European medical cannabis market through Zenabis’ partnerships and result in estimated annual savings of about $20 million within one year of the agreement being complete.

Pot companies have been eyeing international markets in recent months as they realize demand for recreational cannabis is lower than anticipated and that the illicit market has continued to flourish even after legalization.

These companies have been seeking European Union Good Manufacturing Practices certification — a standard required for companies wanting to export cannabis to Europe.

They’ve 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.

Biden’s presidency has caused pot stocks to climb and the deal announced on Feb. 16 only added to the spike.