GATINEAU, Quebec — Hexo Corp., a leading producer of high-quality cannabis products, announced Thursday that the company has taken a significant step in executing on its strategic plan — "The Path Forward" — by finalizing a strategic partnership with Tilray Brands Inc., which includes a new debt financing agreement.
Under the new agreement, Tilray will acquire $211 million of senior secured convertible notes originally issued by Hexo to HT Investments MA LLC. The new terms of the notes are significantly more favorable to Hexo and will enable the company to strengthen its balance sheet and accelerate its transformation into a cash flow positive business within the next four quarters. The new partnership also brings together Canada’s top two cannabis market share leaders and is expected to create efficiencies of up to $50 million Canadian within two years, which will be shared equally between Hexo and Tilray.
“My top priority since I joined in November has been to fix a very challenged balance sheet as a result of the notes that were previously put in place, and today, after an exhaustive search for alternatives, we are announcing the most optimal agreement to strengthen our balance sheet, preserve value for shareholders and provide Hexo with the capital to execute on our 'The Path Forward' plan,” said Hexo President and CEO Scott Cooper. “This strategic alliance will help lower our costs, preserves our standalone optionality, and we look forward to reaching a definitive agreement shortly.”
"We believe the proposed transaction is a win-win for Tilray Brands and Hexo as it would launch a strategic partnership between two leading Canadian cannabis producers with complementary brand portfolios," said Tilray Chairman and CEO Irwin Simon. "For us, it provides a path for meaningful future equity ownership of Hexo and enables us to participate in Hexo’s share price appreciation as it continues to execute on its growth initiatives. We also expect to realize further commercial and production efficiency savings of up to $50 million within two years, which would be shared equally and would allow us to continue being the leading, low-cost Canadian producer. I look forward to working with Hexo’s management team and board to create additional brand awareness and shareholder value.”
“Restructuring Hexo’s debt is a critical first step in allowing the Company to move forward with its Path Forward strategy and to begin to unlock significant shareholder value,” said Mark Attanasio, chair of the board of directors of Hexo. “The company has endured a crippling overhang for the past 12 months, due to punitive redemptions and discounted dilutive financings, and we needed to solve this issue in order to make positive progress. This new deal accomplishes this and places Hexo solidly on a path to growth.”
In addition to the restructured debt, Hexo has also signed an agreement with KAOS Capital and its partners to provide a $180 million Canadian equity backstop to the company, to maintain Hexo’s newly strengthened balance sheet and ensure that all interest and operational costs are covered going forward.
“Our first priority was to refinance the debt that the company had taken on,” said Adam Arviv, CEO of KAOS. “By bringing on Tilray as a strategic partner and alleviating the unsustainable monthly redemptions, we’ve allowed Hexo to refocus their strategic plan. In order to reiterate our support and give the company room to grow and realize its immense potential, we’ve also put a substantial backstop commitment in place, and in doing so, we are very confident in Hexo’s new outlook.”
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