In the wake of the new strategic alliance formed by Tilray (NASDAQ:TLRY) and Hexo (NASDAQ:HEXO), Canaccord Genuity raised its recommendations on the two Canadian licensed producers on Friday, citing the recent decline in the company shares.
Per the terms of the agreement announced yesterday, Tilray (TLRY) will acquire more than $200M worth of debt issued by Hexo (HEXO) with the right to convert them into nearly 37% of Hexo outstanding common shares at a conversion price of C$0.90. In addition, the two parties have agreed to extend the maturity dates of the notes by three years.
The option to covert will allow Tilray (TLRY) to “participate in longer-term equity upside should HEXO successfully implement its “Path Forward” plan, while mitigating downside risk given the secured nature of the notes,” the analyst Matt Bottomley wrote.
As secured notes are set to mature in 14 months, a combination of features outlined in the deal, including the three-year extension, and the addition of Tilray (TLRY) as a commercial partner and debt holder, “will all help HEXO better navigate its turnaround objectives,” he added.
The analyst has upgraded Tilray (TLRY) to Buy from Hold, with the price target set to $9 per share, implying a premium of ~66% to the last close. Upgrading Hexo (HEXO) Speculative Buy from Hold, Bottomley raises the per share target of the Canadian stock to C$1.25 from C$1.00, to indicate a premium of ~65% to the last close.
See how the two companies have underperformed the broader market over the past six months.