The consolidation in the cannabis industry continues as Canadian company HEXO Corp (NYSE: HEXO) and Newstrike Brands Ltd (OTC: NWKRF) reached an agreement under the terms of which HEXO will buy Newstrike for C$263 million ($196.7 million) in stock.
Under the terms of the agreement, Newstrike shareholders will receive a 0.06332 shares of HEXO in exchange for each Newstrike share held. The transaction has been approved by the boards of directors of each company. Newstrike's board recommends shareholders voting in favor of the transaction.
Upon the completion of the acquisition, HEXO shareholders will own 86 percent of the new company, while Newstrike shareholders will hold the remaining 14 percent.
In addition, HEXO provided its financial guidance for fiscal 2020, taking into account the completion of the transaction. The company expects net and gross revenues from the sale of cannabis in Canada north of C$400 million and C$479 million, respectively.
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Why It's Important
Newstrike is the parent company of Up Cannabis, a licensed producer and distributor of cannabis. The transaction will give HEXO access to four new cultivation campuses that will allow it to boost its production capacity to 150,000 kilograms. Moreover, Newstrike's licensed indoor facility will allow HEXO to take advantage of diversified growing techniques, potentially positioning it for international exports.
The combined company will have a wide distribution network with established agreements in eight provinces, Ontario, Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia and Prince Edward Island.
The deal is expected to create annual synergies of C$10 million.
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