Hexo to buy Zenabis in latest tie-up in cannabis sector that's seeing a burst of M&A activity - MarketWatch | Canada News Media
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Hexo to buy Zenabis in latest tie-up in cannabis sector that's seeing a burst of M&A activity – MarketWatch

Published

4 years ago

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Canadian cannabis company Hexo Corp. is acquiring Zenabis Global Inc. in an all-stock deal valued at about C$235 million ($185.2 million), in the latest tie-up in a sector that has been experiencing a burst of M&A activity.

Under the terms of the deal, Ottawa-based Hexo will pay the shareholders of Vancouver-based Zenabis 0.01772 of a Hexo share
HEXO,
+22.58%

HEXO,
+22.16%
for each Zenabis share
ZBISF,
+18.25%

ZENA,
+16.13%
owned, equal to a premium of about 19% based on the 20-day volume-weighted average price of Zenabis common shares and HEXO common shares on the Toronto Stock Exchange, as of February 12, 2021.

The deal has been approved by the boards of both companies and will be put to Zenabis shareholders at a special meeting. Zenabis will face a C$6 million termination fee if the deal is called off.

Once the deal has closed, Hexo shareholders will own 87.43% of the combined company and Zenabis shareholders will hold the remaining 12.57%.

Read: Cannabis stocks nosedive as rally driven by hopes for U.S. legal reforms comes to a screeching halt

The new entity will be a top three licensed producer in Canada’s legal recreational market by sales. It will also offer Hexo a foothold in the European medical cannabis market via Zenabis’ local partner in Malta, with an established facility supplying pharmaceutical products to the European Union market.

The companies are expecting the deal to generate annual synergies of about C$20 million within one year of closing. Hexo will have an additional two indoor grow facilities of about 635,000 square feet, and access to a 2.1 million sq. ft. greenhouse facility, for a total of about 2.735 million sq. ft.

Read now: Aurora Cannabis stock slides as analysts weigh in on weak quarterly earnings and one downgrades to sell

“We are proceeding with this transaction because we believe it should be accretive for our shareholders, and it also positions HEXO for accelerated domestic and international growth while supporting near-term requirements for additional licensed capacity,” Hexo Chief Executive and co-Founder Sebastien St-Louis said in a statement.

Jefferies analyst Owen Bennett said that while the deal shouldn’t surprise, given recent moves by Hexo to consolidate its stock and looks to be accretive, “we do wonder if this has been overly driven by short termism, and from a strategic perspective it does not really get us excited.”

In the Canadian market, Hexo is not acquiring any brands of value, and Zenabis’s main brands are value/discount, as are Hexo’s. The addition of a European presence while broadly positive, is really just a joint venture, Bennett wrote in a note.

“We think Hexo would have been much better placed looking to do something in the US. After all, it is US optionality which will be critical to maintaining current Canadian sector multiples, not Canada and Europe,” he wrote.

Jefferies rates Hexo at underperform.

The deal comes after two recent transactions that made a splash., the Feb. 4 news that GW Pharmaceuticals Ltd.
GWPH,
-0.20%,
the first company to win U.S. Food and Drug Administration approval for a cannabis-based drug, is being taken over by Jazz Pharmaceuticals PLC.
JAZZ,
-0.61%
in a $7 billion deal. That came after the December announcement of a $3.9 billion reverse merger deal between Tilray Inc.
TLRY,
+19.41%
and Aphria Inc.
APHA,
+28.28%

APHA,
+27.61%,
to form the world’s biggest cannabis company measured by revenue.

Read now: To profit from planned merger of Tilray and Aphria, buy Aphria, says this analyst

It also comes after a broad-based rally in the cannabis sector spurred on by the new U.S. administration with President Joe Biden viewed as in favor of reforming the U.S.’s strict cannabis laws, which continue to classify the plant as a Schedule 1 drug, alongside heroin.

That classification has hampered the development of the sector, which is confined to those states that have legalized cannabis for medical or recreational use and kept companies mostly locked out of the federally insured banking system and capital markets. A change in the law is expected to free up capital and bring many new investors to the space.

See: New York is finally expected to legalize cannabis in 2021 as Gov. Cuomo goes all in

Senate Majority Leader Chuck Schumer has pledged to make reform a key part of the current Congress. While most Canadian companies are unlikely to profit from U.S. legalization immediately, it will greatly expand the legal market and the stocks have been swept up in the euphoria.

Read now: Cannabis stocks rally after Chuck Schumer leads drive for reforms that may end federal prohibition

Shares of both companies were higher on the news. Hexo was up 14.6%, while Zenabis was up about 10%.

The Cannabis ETF
THCX,
+5.70%
was up 5% and the S&P 500
SPX,
-0.06%
was flat.

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Carry On Canadian Business. Carry On!

Published

20 hours ago

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October 22, 2024

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business to start in Canada

Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.

I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.

Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.

Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.

Steven Kaszab
Bradford, Ontario
skaszab@yahoo.ca

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Imperial to cut prices in NWT community after low river prevented resupply by barges

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23 hours ago

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October 22, 2024

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NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.

Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.

The air transportation increase, it further states, will be implemented over a longer period.

It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.

Gasoline and heating fuel prices approached $5 a litre at the start of this month.

Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.

“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.

The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.

“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.

Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.

Additionally, she said the government has donated $150,000 to the Norman Wells food bank.

In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.

It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.

This report by The Canadian Press was first published Oct. 21, 2024.

The Canadian Press. All rights reserved.

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U.S. vote has Canadian business leaders worried about protectionist policies: KPMG

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23 hours ago

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October 22, 2024

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TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.

The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs

It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.

The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.

Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.

Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.

This report by The Canadian Press was first published Oct. 22, 2024.

The Canadian Press. All rights reserved.

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