Hexo-Redecan Stock & Cash Merger Heats Up Competition In Pot Industry

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Hexo-Redecan Stock & Cash Merger Heats Up Competition In Pot Industry

 Hexo-Redecan Stock & Cash Merger Heats Up Competition In Pot Industry
Image source: Yarygin, Shutterstock

Stocks of Hexo Corp. (TSX:HEXO) spiked more than 12 per cent in the opening hour (at 9:42 am ET) on Friday, May 28, after the company announced its decision to buy cannabis manufacturer Redecan for C$ 925 million.

Hexo will make the first transaction for C$ 400 million via cash and the remaining C$ 525 million in the form of common shares to purchase privately-owned Redecan Pharma. The allocation of shares to Redecan will be implied at C$ 7.53 apiece.

This acquisition will give tough competition to its peers, such as Canopy Growth (TSX:WEED) and Aphria (TSX:APHA) in the emerging North American pot market. The cannabis firm expects to conclude the deal by the third quarter of 2021.

Following the successful transaction, Redecan stakeholders will get 31 per cent shares of the joint entity and nominate two of its directors to the merged company board. However, the transaction is yet receive a regulatory nod and Hexo shareholders’ approval.

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Let us glance at the pot stock’s price performance and financials:

HEXO Corp. (TSX: HEXO)

The Ottawa-based firm deals in packaged pot goods through its brands, including Up Cannabis and Original Stash. The cannabis stock has shot up by 69 per cent year-to-date. The stock concluded its previous trading session at C$ 7.90 apiece on Thursday, May 27.

HEXO share has declined by nearly 44 per cent from its 52-week high price of C$ 14 apiece, recorded on February 10. The stock has a current market cap of C$ 967, and it could breach the one-billion mark today on the back of the above development.

Hexo's One-Year Stock Performance Against Moving Average Multiple. (Chart Source: Refinitiv)

The stock had crossed its moving average multiple in the previous session, representing an arrival of the bull market.  

It reported a top line of C$ 32.8 million in the second quarter of FY21, ended December 31, 2020, an increase of 94 per cent year-over-year (YoY). Its sales revenue for recreational marijuana, excluding pot-infused drinks, was up 72 per cent YoY.

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