Tilray Brands, Inc. (TSX:TLRY)(NASDAQ:TLRY) and HEXO Corp. (TSX:HEXO)(NASDAQ:HEXO) announced Tuesday that they have revised the terms of a $211 million debt deal signed by the cannabis companies that could see Tilray own a stake in its rival.
The amended terms include an additional discount on the purchase price of Tilray Brands. In addition, the conversion price that Tilray will pay for a note issued by Gatineau-based HEXO and HT Investments MA LLC (HTI) is reduced.
Tilray shares rose nearly 5% Tuesday morning, while HEXO shares dropped close to 6%.
Tilray to End Up With a Larger Share of HEXO
Under the amended agreement, Ontario-based Tilray would acquire the HEXO note from HTI, which includes an outstanding balance of $185 million. This includes any accrued and unpaid interest, and affects up to 89.2% of the outstanding balance. This portion of the balance now equates to a 10.8% discount.
HTI can proceed with redeeming the HEXO Note in accordance with their terms until closing. However, the outstanding principal balance of the HEXO Note, when ultimately purchased by Tilray Brands, will not be less than $160 million.
The original conversion price of the HEXO Note will thus be amended and adjusted downward from C$0.85 to C$0.40 per share. This implies that effective June 13, 2022, Tilray Brands may own approximately 50% of HEXO's outstanding common stock on a non-diluted basis.
As part of closing conditions, Tilray Brands is to issue a $50 million unsecured convertible note to HT Investments in partial payment of debt. The note is to bear interest at 4% per annum, maturing on September 1, 2023. HEXO will not receive any proceeds from Tilray Brands' proposed purchase of the HEXO Note from HTI.
The new terms will allow Tilray to convert half of its outstanding common shares of HEXO this month. However, the deal wasn’t expected to close until July 15; thanks to adjustments, the timeline has been pushed back to August 1.
“We believe HEXO continues to be the right strategic partner for Tilray Brands in Canada and, therefore, (we) look forward to closing this transaction in July and working with HEXO to deliver on the promise and the potential of this partnership for our shareholders, consumers, and employees,” said Irwin D. Simon, Tilray Brands’ Chairman and CEO.
Charlie Bowman, HEXO’s President and CEO, added, “The strategic alliance with Tilray Brands accelerates HEXO’s operational turnaround and unlocks capital to expand our market leadership globally. The partnership is an essential next step in improving our capital structure, and we’re confident that the synergies realized will reset the industry.”
Benefits Brought By the Strategic Alliance
There are numerous expected business and financial benefits that are likely to come as a result of the partnership between HEXO and Tilray Brands, including:
- Accretion: Due to the substantial synergies, the acquisition of the HEXO rating by Tilray Brands will be immediately accretive to the company.
- Significant synergies: The strategic alliance between Tilray Brands and HEXO is expected to generate up to $80 million in shared cost-savings synergies within two years of closing the transaction. The two companies have already begun evaluating operations and production efficiencies. This includes analysis in regards to cultivation and processing services, including pre-rolls, beverages, and edibles, as well as shared services and procurement. Along with sharing synergies, HEXO will pay Tilray Brands an annual royalty of $18 million for cultivation, operations, and production consulting services.
- Bolstering innovation in both domestic and international markets: Tilray Brands and HEXO’s partnership brings together expertise and leadership in the cannabis industry, including cannabis cultivation, product innovation, brand building, and distribution. By utilizing each companies' commitment to innovation and efficiency, the two companies will share their respective expertise and know-how to strengthen their market positioning and capitalize on growth opportunities through expanded products and accelerated CPG innovation.
After the closing of the transaction, Tilray will name two directors to HEXO's Board of Directors and one observer to the Board.
Commercial Agreements
As previously announced, Tilray Brands and HEXO have also agreed to continue working together to finalize and enter into commercial agreements upon the closing of the transactions on mutually acceptable terms covering the following key areas: Tilray Brands will complete production and processing as a third-party manufacturer of products for HEXO; HEXO will source all of its cannabis products in international markets, excluding Canada and the United States, exclusively from Tilray Brands; HEXO and Tilray Brands will share savings on a 50/50 basis related to facilities optimization activities, procurement, general and administrative expenses, including insurance and certain shared services, and certain production and processing activities for straight-edge pre-rolls, edibles, and beverages. The commercial agreements will also stipulate that HEXO will pay Tilray Brands an annual royalty of $18 million for cultivation, operations, and production services.
HEXO’s Joint Venture Expands Its Cannabis Beverages Portfolio
On Tuesday, Truss Beverage Co., a joint venture between affiliates of Molson Coors Canada and HEXO, announced it would launch 15 new cannabis-infused beverages for summer, one of the largest beverage occasions of the year.
While cannabis drinks have grown steadily since legalization, the arrival of new flavors continues a year of defining product development for Truss. With over 45% growth in cannabis beverages year-to-date, nearly three times the total cannabis sales data year-to-date, Truss is poised to answer the growing consumer demand for cannabis beverages.
The line of beverages contains a number of summer-inspired flavors. The new products are the result of consumer-driven ideas, including demands for less sugar and more high-dose (10mg of THC) beverages.
Along with the launch of the XMG ALT™ line extension in April, Truss' exciting innovation includes:
- Little Victory Celtzer™ Lime, Little Victory Celtzer™ Raspberry, Little Victory™ Sparkling Peach (Little Victory Celtzers will be available in a Mixer 4 pack in Ontario only)
- Bedfellows Sour Razpaartner™, Bedfellows Doppelrädder™, Bedfellows Passionfruit Pals™
- XMG™ Blue Raspberry, XMG™ Lemon Iced Tea
- XMG™ Sodas, with a range of four popular flavors: Cream Soda, Root Beer, Orange Soda, and Cola
New beverages from Truss Beverage’s portfolio will continue to roll out to authorized local cannabis stores and online retailers in Canada this summer.
Featured Image: Megapixl © Komkritoor
