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Why HEXO Stock Surged Today

By Joe Tenebruso - Updated Feb 16, 2021 at 6:02PM

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The marijuana producer is acquiring a key rival.

What happened 

Shares of HEXO (HEXO -7.85%) climbed 22.6% on Tuesday after the cannabis company announced it agreed to purchase fellow Canadian weed maker Zenabis Global (ZBISF)

So what

The all-stock deal values Zenabis at roughly 235 million Canadian dollars ($185 million). HEXO says acquiring Zenabis will strengthen its position in Canada's recreational cannabis market and give it a beachhead into Europe's medical marijuana industry.

Two people are shaking hands.

HEXO and Zenabis Global are joining forces. Image source: Getty Images.

The deal is also expected to boost HEXO's annual cannabis production capacity by 111,200 kilograms. Better still, the combined companies could cut costs by as much as $20 million annually.

"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," CEO Sebastien St-Louis said in a press release. "HEXO's growth strategy includes expanding our global presence, and this acquisition is an important step in that direction."

Now what

The cannabis industry is likely to consolidate further in the coming months. Along with HEXO and Zenabis, Aphria and Tilray are merging to bolster their ability to profit from the growth of a global marijuana market that some analysts say could generate $200 billion in annual sales by 2030. Thus, investors should expect more merger and acquisition deals by cannabis companies in the coming months.

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Stocks Mentioned

HEXO Stock Quote
$0.26 (-7.85%) $0.02
Zenabis Global Inc. Stock Quote
Zenabis Global Inc.

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