Canadian pot producer Tilray Brands Inc. on Monday said it would buy rival Hexo Corp. for $56 million, after years of losses, steep competition and stalled federal reform in the U.S. have weighed on the industry’s growth prospects.
The purchase price of the deal, announced in Tilray’s
TLRY,
third-quarter earnings release, was considerably below Hexo’s
HEXO,
market cap of around $73 million, according to FactSet. BNN Bloomberg reported news of a possible deal earlier in the day.
Shares of Hexo tumbled 23% after hours, while Tilray fell 4.7%.
“With the recent headwinds in the cannabis industry, our board determined that HEXO shareholders would benefit from being part of Tilray’s diversified business and from the strong plan in place they have to reinforce their industry leadership, continue to strengthen the top and bottom lines, and to drive value creation,” Mark Attanasio, Hexo’s chairman, said in a statement.
Under the terms of the deal, Tilray would issue 0.4352 of its common stock for each outstanding Hexo share.
The deal arrives after Tilray’s efforts to expand into Europe’s nascent medical cannabis markets and into craft beer and whiskey in North America. But the craft beer industry, like Canadian cannabis, has also slowed.
Tilray reported net sales of $145.6 million during its third quarter, down from $151.9 million in the same quarter last year. It reported a net loss of nearly $1.2 billion, or $1.90 a share, contrasting with a profit of $52.5 million, or 9 cents a share, in the prior-year quarter.
The results were worse than expected. Analysts polled by FactSet expected sales of $150 million, and a loss of 5 cents a share.
