In what isn't the first, and likely won't be the last, marijuana industry acquisition of 2021, HEXO (HEXO +0.00%) announced Tuesday that it is acquiring a peer company, Zenabis Global (ZBISF +0.00%). The price is 235 million Canadian dollars ($186 million), which will be paid entirely in HEXO stock.
Specifically, Zenabis stockholders will receive nearly 0.02 of a share of HEXO for each Zenabis share they own. According to HEXO, this represents a premium of 19% on a 20-day volume-weighted average share price for Zenabis stock.
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In its press release trumpeting the new asset buy, HEXO ticked off several advantages it says it will enjoy by absorbing Zenabis.
First, it claims that this will make it one of the top three licensed Canadian marijuana producers, in terms of recreational weed sales. It will also hook HEXO into the small but growing medical marijuana market abroad, as Zenabis in 2020 won approval to export its product to the European Union.
Perhaps most importantly, owning Zenabis would add over 2.7 million square feet of cultivation space for HEXO, more than doubling its recent tally.
But Zenabis shares one bad trait with HEXO: It consistently books bottom-line losses. In the first nine months of 2020, its shortfall was CA$40.5 million ($32 million).
HEXO's news comes shortly after two other marijuana industry mergers/acquisitions were announced, specifically Aphria's merger with Tilray, and Jazz Pharmaceuticals' buyout of GW Pharmaceuticals, a developer of cannabis-based medications.
The HEXO/Zenabis deal requires the approval of two-thirds of the latter's shareholders, and is subject to approval by the relevant regulatory bodies. It has already been approved by the boards of both companies.
Investors like this move; on Tuesday, HEXO was up by more than 22%, in sharp contrast to the flat performance of the S&P 500 index.
