HEXO and Tilray Brands will target a combined cost savings of up to $80m within 24 months in an effort to drive profitable growth.
Tilray Brands acquired the HEXO note from HT Investments, which has an outstanding principal balance of $173.7m. The purchase price reflects a 10.8 percent discount on the outstanding principal balance.
The purchase price was satisfied, in part, by Tilray Brands’ issuance to HT Investments of a new $50m convertible unsecured note and approximately 33.3 million shares in class 2 common stock of Tilray Brands.
HEXO said the transaction will provide the company with a recapitalised balance sheet and the financial flexibility needed to accelerate its transformation into a cash flow-positive business within the next four quarters.
“This partnership with Tilray Brands is a game-changer for HEXO,” said Charlie Bowman, CEO of HEXO Corp. “It provides us with the opportunity to reset the organisation onto a path of profitable, sustainable growth and allows us to leverage our leading market share into becoming the preferred cannabis experience for consumers. We’re now able to proactively plan for the second half of 2022 and beyond, focusing on meeting evolving consumer demand and innovative product development.”
HEXO and Tilray Brands have entered into several commercial agreements, providing the two companies with cost-saving synergies and production efficiencies, with a target combined cost savings of up to US$80 million within two years.
As part of the commercial agreements, each company will act as a third-party manufacturer of certain products for the other party. HEXO will also be required to source its cannabis products for international markets, excluding Canada and the US, from Tilray Brands and will pay the company an annual fee of $18 million for advisory services.
Tilray has also acquired the right to convert the HEXO note into approximately 48 percent of the outstanding common stock of HEXO.
Tilray Brands’ chairman and CEO, Irwin D. Simon commented: “We are excited to close on this strategic transaction and alliance with HEXO, which is expected to provide several financial and commercial benefits, including substantial cost-savings synergies, increased strength in product innovation to capitalize on for market opportunities in Canada and internationally, along with the US, upon federal legalisation.
“This is a unique opportunity to realise our vision to enhance consumer experience and lay the groundwork for the next evolution of Canadian cannabis.”
“Refinancing our balance sheet and funding future growth has been a top priority,” said Julius Ivancsits, CFO of HEXO Corp. “Finalising this agreement accomplishes both objectives, placing HEXO on solid financial footing and increasing shareholder value.”