Tilray and Hexo sign new strategic partnership to lower costs

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Canadian licensed producers, Tilray Brands (NASDAQ:TLRY) and Hexo Corp. (NASDAQ:HEXO) have joined hands by finalizing a strategic partnership.

The deal, which includes a new debt financing agreement, is “a significant step in executing on its strategic plan -The Path Forward,” Hexo (HEXO) announced Thursday. The company shares have added ~20%, while Tilray (TLRY) is trading flat.

The partnership, bringing together two market leaders of the Canadian cannabis industry, includes a plan to create up to C$50M worth of efficiencies within two years, which will be equally shared between the parties.

Per the terms, Tilray (TLRY) is set to acquire more than $210M worth of debt instruments issued by Hexo (HEXO) to HT Investments MA LLC. In return, Tilray (TLRY) has agreed to pay 95% of the then-current outstanding principal of the debt. Additionally, the maturity date of debt has been extended by three years to May 2026.

The new terms of the notes are more favorable to the company, and will strengthen its balance sheet allowing the company to reach cash flow positive within the next two quarters, Hexo (HEXO) said.

“This strategic alliance will help lower our costs, preserves our stand-alone optionality and we look forward to reaching a definitive agreement shortly,” Hexo Chief Executive Scott Cooper noted.

“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,” Tilray CEO Irwin D. Simon remarked.

A conference call on the agreement is scheduled at 8.30 AM EST on Thursday.

Last year, Tilray (TLRY) acquired a majority of outstanding convertible notes of MedMen Enterprises (NASDAQ:MNMD) in preparation for a potential U.S. legalization of cannabis.