Tilray to Acquire Hexo Corp. for $56 Million, Loses $1.1 Billion in Q3

Tilray Brands Inc. (Nasdaq: TLRY) (TSX: TLRY) inked a deal to acquire Quebec-based Hexo Corp. (Nasdaq: HEXO) (TSX: HEXO) in a $56 million stock-swap deal, Tilray announced Monday. At the same time, Tilray revealed $1.1 billion in losses for its third fiscal quarter of 2023.

The acquisition is expected to close in June, and when news of the deal leaked on Monday afternoon, Hexo’s stock shot up 36%. After it was confirmed, however, the stock price slipped again, falling 24% in after hours trading.

Under the terms of the deal, every Hexo shareholder will receive 0.4352 shares of Tilray common stock in exchange for every share of Hexo, with an implied price of $1.25 per Hexo share, based on Nasdaq trading on April 5, according to a press release.

Tilray CEO Irwin Simon said the company’s mission is still to become the “most diversified cannabis lifestyle” brand on the planet and that the Hexo acquisition fits perfectly with that agenda.

“We are incredibly excited about our combined prospects moving forward with HEXO and expect a seamless integration of HEXO’s business into our efficient, built-to-last platform,” Simon said. “At the same time, we will continue our relentless focus on cost and operational efficiencies and strengthening our industry-leading balance sheet to deliver sustained, profitable growth.”

The company further asserted that adding Hexo to its arsenal will add roughly $215 million to its pro-forma net sales, thanks to “low-cost operations and complementary distribution” that Hexo brings to Tilray.

Earnings not as bright

Buried far beneath the acquisition news, however, was the news that Tilray lost $1.1 billion in a three-month span, and its total losses for the first nine month of the 2023 fiscal year have passed $1.3 billion. That represents a 5,691% swing from the previous fiscal year, when the company posted a $23 million profit in the first three quarters of fiscal 2022.

The losses, Tilray said in its report, were largely due to a “$1.1 billion non-cash asset reduction resulting from higher interest rates and a decline in market capitalization,” which it said “has no impact on the company’s compliance with debt covenants, its cash flows or available liquidity.”

Indeed, Tilray reported having just under $165 million in the bank at the end of its third quarter in February, though that’s down from the $415 million it had in cash as of May 31, 2022.

Revenues were down as well, to $145 million from $151 million the same quarter a year prior, and down to $442 million for the first three quarters of fiscal 2023 from $475 million the same period in 2022.

Tilray said it hopes to further expand its international market share in countries such as Portugal and Germany, where it already deals in medical cannabis, and that it’s keeping an eye out for new international MMJ markets to enter “as cannabis legalization continues to proliferate across Europe.” Just this month, for instance, Tilray said it expanded MMJ distribution in the Czech Republic.

It’s also investing in its beverage sector, including the newly acquired Montauk Brewing Co., as well as its other beverage brands in Canada and the U.S., to position itself for optimum returns once the U.S. legalizes cannabis federally. Montauk and several of Tilray’s brands have been expanding into new North American markets actively and gaining new distribution channels, the company said.