Gatineau's HEXO to buy Newstrike Brands Ltd.

Cannabis producer HEXO buys out Newstrike in $263 million stock deal

In addition to the increase in production space and diversification of growing, HEXO now has distribution agreements in eight Canadian provinces.

HEXO expects the deal to boast annual benefits of $10 million and hopes to achieve more than $400 million in net revenue in fiscal 2020.

The proposed deal would result in Newstrike shareholders owning 14 per cent of the combined company, with the rest owned by HEXO shareholders.

The deal still requires approval by Newstrike shareholders, as well as regulatory court and stock exchange approvals.

Newstrike now has two cannabis facilities in Ontario - an indoor grow room in Brantford, and a greenhouse in Niagara. The all-stock deal is worth approximately $260 million. "Jay Wilgar (CEO of Newstrike) and his team have built incredible relationships, including teaming up with The Tragically Hip, and they share HEXO's vision of bringing exceptional branded cannabis experiences to adults everywhere", said Sebastien St-Louis, HEXO's CEO and co-founder.

Multiple public cannabis companies, and even some LPs, have established relationships with winners of the Ontario cannabis retail lottery to aid in the roll-out of the retail market.

Cannabis producer HEXO buys out Newstrike in $263 million stock deal

"Still, there is this general investor belief that it doesn't matter what happens because there is going to be all this consolidation in the industry and my penny stocks will get acquired so I'll be rescued with a huge premium", said Matt Shalhoub, managing director of cannabis-focused venture capital firm Green Acre Capital, which is not invested with either Newstrike or Hexo. "We will leverage the winning strategies and platforms of both companies to maximize the potential of the combined company".

At the same time, inventories of finished cannabis oil held by federal license holders, wholesalers and retailers sky-rocketed from 2,600 liters in October to over 19,000 liters in January.

Shares of both producers rallied on Tuesday based on the announcement. Meanwhile, medical gross revenue per gram increased from $9.12 to $9.15. "We are thrilled to have been selected by Up Cannabis to provide guarding services and secure transport for a company with clear growth ambitions, tremendous production capacity, and supply agreements in place that can support its strategic intentions".

This is a positive step for HEXO, as the acquisition gives the cannabis company the ability to produce around 150,000 kgs of high-quality cannabis a year. This news alone is why HEXO stock is on our list of pot stocks to watch!

Asked whether Wilgar and the rest of the management team at Newstrike would transition into Hexo as well, Rendon said "a transition team will be working between now and the close of the transaction on integration matters", but no integration is being disclosed until the deal closes.

Don't forget to follow us @INN_Cannabis for real-time news updates! This article is not paid-for content.

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