Hexo to acquire fellow licensed producer Zenabis

The deal would create a "top three" cannabis company with a foothold for expansion in Europe.
Medical Marijuana/ Cannabis And Accessories

Ottawa-based cannabis producer Hexo has entered an agreement to acquire Vancouver’s Zenabis, giving it an immediate foothold in Europe and making it into what it says is one of the country’s top producers.

The all-share transaction is valued at approximately $235 million, though is still subject to standard regulatory approvals.

A big impact of the deal will be Hexo getting immediate access to the European medical cannabis market, as Zenabis has a local partner and an established packaging and distribution facility on the continent.

Outside of international expansion, the deal includes Zenabis’ recreational brands, Namaste and the value-focused Re-Up.

Neither brand has broken away from the crowded pack in terms of sales or brand awareness, but Hexo said in its announcement that the acquisition of Zenabis and its brands would make it a “top three” licensed cannabis producer in terms of recreational sales.

Not every producer breaks out its sales by recreational and medical segments, but according to the most recently available financial disclosures, Canopy Growth generated $79.3 million in revenue from recreational cannabis alone, while Aurora generated $79 million from all cannabis sales. Hexo had $38.6 million in revenue from non-medical cannabis sales in its most recent quarter, while Zenabis had $19 million from all cannabis sales.

It’s also unclear whether that “top three” includes the entity that will come out of the merger between Tilray and Aphria, which is expected to close in the near future and will create what the companies have said will be the largest cannabis player globally by revenue. (Aphria reported $67.9 million in revenue in its most recent quarter from its cannabis business, while Tilray reported $31.4 million.) First announced in December, Tilray is expected to give an update on the progress towards merging during its Q4 financial results, set to be released Wednesday after market close.

Over the last year, many cannabis producers have been consolidating operations, cutting costs and scaling back their production facilities as the category begins to settle down from the flurry of investment that preceded recreational cannabis legalization in 2018 and the sale of edibles and beverages in late 2019. Hexo anticipates roughly $20 million of synergies within one year of close, through cost of goods reductions and utilizing additional capacity.