Tilray Brands To Ally With Hexo Corp.
Tilray Brands recently announced a proposed agreement to partner with Hexo Corp. The alliance will prove mutually beneficial to both businesses in a commercial and financial context. The partnership adjoins the largest cannabis market share holders to bolster product creation as well as operational efficiency.
If the proposed agreement is consummated, it will be a boon to both companies as well as their shareholders. Current and prospective cannabis investors will find it interesting to know that Tilray Brands is a publicly traded company with the symbol of TLRY. Hexo Corp. is also a publicly traded company with the symbol of HEXO.
Details Of The Agreement
The proposed agreement will provide $20 million (CAD) of interest payments to Tilray Brands in the initial year, tacking on four cents per share to the subsequent earnings per share. The agreement also sets the stage for an equity conversion option from Tilray shares to Hexo shares.
The key takeaway from the agreement is that it strategically positions Tilray to enjoy significant financial gain as a result of Hexo’s potential for growth in the years ahead. Representatives from both of the companies anticipate they will obtain extensive commercial benefits highlighted by improved production efficiency and enhanced support services that have the potential to amount to savings at or near $50 million.
Tilray Background
Those interested in marijuana investing should keep close tabs on Tilray. Tilray is a worldwide cannabis consumer packaged goods and lifestyle specialist with significant growth potential. The proposed agreement with Hexo creates the potential for Tilray to acquire $200+ million of senior secured convertible notes issued through Hexo. Those notes are currently held by HT investment funds affiliates.
The notes in question would be changed to empower Tilray to exercise rights for conversion at 90 cents per share of Hexo. The hope is that this partnership proves mutually beneficial for both businesses, bolstering participation in Hexo’s opportunities for growth and ultimately adding to shareholder value.
Tilray’s Leadership Makes A Statement
The Chief Executive Officer and Chairman of Tilray Brands, Irwin D. Simon, recently commented on the proposed agreement. Simon highlighted the fact that the transaction will help both companies in a strategic sense with the whole of the companies being greater than the sum of their parts. He also noted how the two businesses have complementary portfolios in the context of branding.
Irwin noted that the agreement will allow for Tilray to obtain significant future equity ownership in the new partner, setting the stage for progress on upcoming growth initiatives that add to the value of each company. The Tilray head also pointed out the agreement will result in $50 million worth of production savings within two years or less.
Is an Invaluable Corporate Synergy On The Horizon?
The potential alliance between the two companies will result in the cost savings noted above. Those cost savings will be split down the middle between the two businesses across the ensuing two years. The companies have been working in tandem to analyze the potential cost savings and additional financial efficiencies possible with the partnership. The corporate synergy will likely be a significant boon to sales of cannabis 2.0 items including the likes of edibles, cannabis-infused beverages and popular pre-rolls.
Enhanced Corporate Dexterity And Accretion
The notes acquisition will be promptly accretive to Tilray. The amendment noted above will implement a 10% interest rate per year beyond the date of the deal’s closing. The interest is paid in cash during the initial year. The notes are to be paid 50% in cash across the remainder of the term. The other half is to be tacked on to the principal amount in the form of PIK, short for payment in kind.
Tilray will also enjoy the flexibility to obtain payment of the principal amount along with accrued interest along with PIK at the point the notes mature. Alternatively, Tilray can convert the amount of the principal along with accrued interest before maturity for a significant ownership stake in Hexo.
