Tilray Brands and Hexo sign definitive commercial and financial partnership agreement

Tilray Brands Inc. (NASDAQ: TLRY) has announced a financial and commercial partnership definitive agreement with Hexo Corp (NASDAQ: HEXO). This strategic partnership creates a collaboration deal for product innovation that include optimization of Cannabis 2.0 products and Cannabis 3.0 Wellness products.

As originally disclosed on March 3, 2022, the collaboration brings together Canada’s two most prominent cannabis companies, bolstering their corresponding operations and paving the way for manufacturing efficiencies that are believed to bring productivity gains and other cost savings amid extremely competitive market trends.

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Tilray to acquire 100% of Hexo’s issued senior secured convertible Note

Tilray Brands will purchase 100% of the outstanding principal amount of HEXO’s issued senior secured convertible Note (“Note”) and retained by funds allied with HT Investments MA LLC (“HTI”) under the agreement terms, subject to the satisfaction of specified closing conditions. Tilray Brands will amend the Note to incorporate conversion options at $0.85 per HEXO Share, allowing it to gain a significant equity ownership stake in HEXO and directly participate in its significant growth prospects.

The companies are aware that to win in Canada means they have to focus on operational excellence and product innovation. As a result, Tilray is looking forward to collaborating with HEXO to reach that goal and deliver value for shareholders. Hilary CEO Irwin Simon said:

The agreement with HEXO delivers on both fronts as it facilitates collaboration, the sharing of best-practices, and yields quantifiable operating efficiencies between two companies with unparalleled global cannabis expertise. In addition, we believe the timing is right given HEXO’s progress executing its operational turnaround plan that could deliver tangible value to Tilray Brands shareholders upon equity conversion of our investment.

Acquisition to be accretive to Tilray immediately

The Note acquisition by Tilray will be accretive immediately, and the agreement provides for Tilray to receive $18 million annually from HEXO for advisory services related to production, cultivation, and operation matters. As per the terms of the amended Note, it shall carry an interest of  5% per year from the date of closing.

The alliance between the companies will deliver around $80 million in inefficiencies and cost synergies in the first two years that shall be shared 50:50  subject to specific agreed-upon amendments.