HEXO steps up cannabis M&A spree with C$925 million Redecan deal

(Reuters) -HEXO Corp said on Friday it would buy Redecan, a privately-owned Canadian cannabis producer, for C$925 million ($764.72 million) in cash and stock, as the pot producer bolsters its portfolio to tap surging demand and position itself as a top recreational weed supplier.

Hexo shares rose 8% in morning trading.

Cannabis demand surged last year as many people turned to pot during COVID-19 lockdowns for entertainment and relaxation. The industry is now benefiting from hopes of federal marijuana reform in the United States following a recent wave of legalization that has swept many key U.S. states.

Legalization hopes have been driving a surge in dealmaking, with HEXO alone signing two other deals in the last five months. In February, HEXO said it was taking over Zenabis Global Inc for C$235 million, giving it access to the European medical cannabis market.

Earlier this month, HEXO announced the purchase of 48North Cannabis Corp for about C$50 million.

Company executives from both HEXO and Redecan noted the importance of a combined portfolio on a call with analysts, saying a “strong home market foundation is imperative to form meaningful international expansion.”

Mergers and acquisitions will be part of HEXO’s strategy until the company is one of the top three global cannabis products maker, HEXO’s Chief Executive Sebastien St-Louis said.

Redecan shareholders will get C$400 million in cash and C$525 million in HEXO shares at an implied price of C$7.53 at the close of the deal, which is expected in the third quarter of 2021.

Redecan shareholders will hold about 31% of the combined entity and will receive the right to nominate up to two members to HEXO’s board.

($1 = 1.2096 Canadian dollars)

Reporting by Arunima Kumar in Bengaluru; Editing by Krishna Chandra Eluri