Canadian cannabis company HEXO Corp. announced on Tuesday that it had entered into a definitive agreement to acquire its competitor Redecan Holdings for $925 million. The move strengthens HEXO’s position in the Canadian cannabis market, which is set to grow significantly in the coming years.
In a deal reported in the news this week, HEXO Corp. (CSE:HEXO) (OTC:HYYDF) has agreed to acquire all of the issued and outstanding securities of Redecan for $925 million in cash. This deal will increase HEXO’s production capacity from 4,000 kgs of cannabis per year to 9,000 kgs of cannabis per year, as well as expanding HEXO’s distribution channels in Canada.
HEXO Corp. (CSE:HEXO) (CNSX:HEXO) (“HEXO” or “the Company”) is pleased to announce that it has entered into a definitive agreement with Redecan LLC for Redecan (the “Acquisition”) pursuant to which HEXO will pay $925 million (the “Purchase Price”) in exchange for all of the issued and outstanding common shares of Redecan (the “Redecan Shares”).
HEXO Corp announces acquisition of Redecan, creating a Canadian leader in adult distribution
- The combined company will be the largest player in the Canadian recreational cannabis market and will rank first in Canada’s four largest markets: Alberta, British Columbia, Quebec and Ontario.1
- HEXO has one of the most trusted brand portfolios in Canada: The combined company will be a leader in key consumer product categories with established distribution channels across the country.
- Redecan’s lean manufacturing capabilities are expected to improve future financial performance and increase the potential to generate cash flow.
- The combined forces will become a platform for global growth, leveraging HEXO’s international reach. Redecan was co-founded by Pete Montour, Will Montour and Richard Redecop and is a family-owned business.
- A Canadian cannabis company with 30 years of farming history.
OTTAWA and TORONTO, 28. May 2021. (GLOBE NEWSWIRE) – HEXO Corp (HEXO) (TSX:HEXO; NYSE: HEXO) is pleased to announce that it has entered into a definitive share purchase agreement (the Share Purchase Agreement) to acquire all of the outstanding shares of the companies operating Redecan, Canada’s largest leader in a number of licensed private categories, for a purchase price of $925 million payable in cash and through the issuance of HEXO common shares, subject to certain customary adjustments (the Transaction). We have established a plan to become one of the top three players in the Canadian adult-use cannabis market. With today’s announcement, we believe that we are on the verge of achieving this goal of becoming the largest manufacturer of licenses in terms of market share in the entertainment industry.
Sébastien Saint-Louis, CEO and co-founder of HEXO
The combination of HEXO and Redecan, with its strong market dynamics, strengthens our position as the industry leader and provides a solid basis for growth, economies of scale and improved financial performance. The Canadian adult products industry continues to evolve at a rapid pace, and we are at the forefront of this change, Mr. Saint-Louis added. With the acquisition of Redecan, we aim to leverage our combined expertise in product development, manufacturing and branding in Canada. We will also be able to offer consumers in Canada a diverse and innovative range of high quality products, with an enhanced brand promise that will allow us to better compete with other LPs in Canada, while positioning the company for future expansion into the United States. We will strive to build on our advanced consumer partnerships, expand our international presence with the goal of becoming one of the top three cannabis product companies in the world, and continue to create value for our shareholders. On behalf of our entire management team, I am pleased to welcome the Redecan team to the HEXO family, added Mr. Saint-Louis. Redecan’s unwavering focus on the customer, combined with lean manufacturing principles and highly efficient automated production techniques, has enabled us to establish a significant presence in the Canadian market, said Will Montour, co-founder of Redecan. We are now in a phase where size matters and where the complementarity of our customer bases, brand portfolios and dealer relationships can improve financial performance. Joining the HEXO team will allow us to join forces and accelerate our growth in Canada and beyond, adds Pete Montour, co-founder of Redecan. We look forward to working together to create a leading global organization. Strengths of the Agreement
- Brand leaders: Redecan’s product range and market leadership in a number of key product categories will complement HEXO’s already strong offering of in-demand brands in a variety of products and price points.
- A robust product range: Following the acquisition, HEXO will be the Canadian market leader in the sale of top quality dried flowers, basic products and inexpensive prices. The company also becomes the market leader in cannabis-infused beverages through Truss Beverages, and Redecan’s differentiated product portfolio includes best-selling oils and capsules, as well as market leadership in the preroll category.2
- Product Innovation: The new combined know-how will make it possible to develop better and more stable products in important categories.
- Accelerated path to positive earnings per share : Redecan has proven it can consistently deliver strong EBITDA with a low amortized capital base and no debt.
- First-class production capabilities: Redecan has advanced manufacturing, automation and packaging capabilities to produce some of the most stable, efficient and innovative products in the industry. With its patented, highly efficient pre-roll technology, the company achieves some of the highest gross margins in the industry.
- Global growth opportunities : HEXO intends to leverage Redecan’s unique products, manufacturing expertise and well-known brands to increase its market share in Canada and take advantage of opportunities in the United States and Europe.
Summary of purchase information Under the terms of the stock purchase agreement, the $925 million purchase price will be paid to Redecan shareholders as follows:
- 400 million as a final payment, payable in cash; and
- The $525 million consideration due at the closing is to be paid by the issuance of HEXO common stock (the Settlement Shares) at a deemed price of $7.53 per share.
The price of $7.53 per share represents the volume weighted average price (VWAP) of HEXO common shares on the Toronto Stock Exchange (TSX) during the five trading days following the close of the Canadian markets on the 27th. May 2021. It is expected that immediately upon completion of the transaction, on a fully diluted basis, Redecan shareholders will collectively own approximately 31% of the issued and outstanding common shares of HEXO. Under TSX rules, the transaction must be approved by a simple majority of HEXO’s shareholders. HEXO intends to convene a shareholder meeting in August 2021 to submit the transaction to shareholders for approval. Financing Yesterday, HEXO announced the closing of an offering of $360,000,000 aggregate principal amount of senior secured convertible notes due May 1, 2023 (the Notes), issued directly to an institutional buyer and certain of its affiliates or funds. HEXO will use substantially all of the net proceeds from the sale of the bonds to pay the expected cash portion of the purchase price of the transaction. More information about the transaction In addition to restrictions under applicable securities laws, the resale of the Consignment Shares by Redecan Shareholders is limited to a 24-month holding period during which, subject to certain exceptions, each Redecan Shareholder may not sell more than 1/24th of the original number of Consignment Shares issued by it in the transaction. In addition, Redecan’s shareholders have agreed to abide by the customary 18-month waiting period during which the shareholders have pledged their support to HEXO’s management and board of directors. The share purchase agreement contains provisions for the reimbursement of costs to Redecan’s shareholders in the event that the transaction is terminated by either party in certain circumstances. Redecan shareholders will have the right to appoint up to two members to the board of directors of HEXO (within certain parameters) and will have other customary governance rights under the Investor Rights Agreement (the Investor Rights Agreement), including limited recourse rights and retrospective registration rights. HEXO’s board of directors will be expanded to 10 members following the transaction, with Peter James Montour and William Montour, two of Redecan’s founding shareholders, joining HEXO’s board as directors. Redecan’s shareholders will continue to be bound by the customary non-compete and non-assignment covenants in favour of HEXO and Redecan following the completion of the transaction. The transaction is expected to close in the third calendar quarter of 2021, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals and shareholder approval as described above, in accordance with the rules of the TSX. The transaction was unanimously approved by HEXO’s board of directors. Further information about the Transaction will be included in the Information Circular that HEXO will prepare, file and distribute to its shareholders in due course in connection with the shareholders’ meeting to be held to consider the issuance of the Payment Shares pursuant to the Transaction, as required by the rules of the TSX. The Share Purchase Agreement and the Investment Agreement will be published on SEDAR under HEXO’s profile at www.sedar.com. Conference call and presentation for investors HEXO will hold a conference call today at 8:00 am ET to discuss the acquisition. The conference call can be accessed via the following link: https://event.on24.com/wcc/r/3203301/266DA960BFA882443495497A31D6FC80. In addition, hexocorp.com published a presentation for investors explaining the transaction. consultants Adam Arviv, a renowned transaction specialist, is special senior advisor to Redecan. Eight Capital is acting as financial advisor to HEXO. A.G.P./Alliance Global Partners is acting as sole placement agent for HEXO in connection with this financing. BMO Capital Markets is acting as special advisor to HEXO in connection with the financing and the transaction. Norton Rose Fulbright Canada LLP is providing legal advice to HEXO in connection with the transaction. DLA Piper LLP is acting as legal counsel to HEXO in connection with the financing. Bennett Jones LLP is acting as legal counsel to Redecan. About HEXO Corp HEXO Corp is an award-winning consumer cannabis company that develops and distributes innovative products for the global cannabis market. The company serves the Canadian adult-use market under the brand names HEXO Cannabis, Up Cannabis and Original Stash, and the medical market under the brand name HEXO Medical Cannabis. For more information, visit hexocorp.com. About Redekan. Canadian cannabis company Redecan was founded by Pete Montour, Will Montour and Richard Redecop. Redecan has over 30 years of farming experience and uses fresh water and sunlight to farm as it has been done for hundreds of years. The company’s patented cultivation methods are unique and continually improved through the use of advanced technologies. Redekan, where the best things in life are green. 1 Source: Based on market share data for leisure helmets from 01-Oct-20 to 31-May-21 for ON, BC and AB; based on sales volume data for Q4 20 and supplier sales data provided by SQDC for QC. 2 Source: Based on market share of leisure heads from 01-Oct-20 to 31-May-21 for ON, BC, AB and SK. Original press release Stay ahead of the crowd by subscribing to 420 Investor, the largest and most comprehensive subscription service for cannabis dealers and investors since 2013. 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Canadian cannabis producer HEXO Corp. has agreed to buy competitor Redecan for $925 million. The acquisition will expand HEXO’s presence in legal cannabis markets across the U.S., Canada and Europe, while adding better access to the Redecan brand and intellectual property.. Read more about who owns redecan pharm and let us know what you think.
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