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Another Near Billion-Dollar Cannabis Acquisition Signals More Hyper Valuations to Come

VANCOUVER – USA News Group – As part of its recent cannabis M&A spree, HEXO Corp. (NYSE:HEXO) (TSX:HEXO) spent nearly another billion dollars, acquiring Canada’s largest privately-owned licensed cannabis producer Redecan for C$925 million. By adding Redecan, HEXO continues to grow its large portfolio of brands and production operations, as well as new cannabis 2.0 extraction-based products. Because of the size of the deal, the potential values of other Canadian cannabis brands, producers and extractors could be on the rise as additional M&A activity begins to swell in the leadup to potential legalization in the USA. Other Canadian companies that have been positioning themselves in this field include Pure Extracts Technologies Corp. (OTC:PRXTF) (CSE:PULL) (XFRA: A2QJAJ), The Valens Company (OTC:VLNCF) (TSX:VLNS), Medipharm Labs Corp. (TSX:LABS) (OTC:MEDIF) and Neptune Wellness Solutions Inc.(NASDAQ:NEPT) (TSX:NEPT).

The Redecan deal followed HEXO’s previous announcements of taking over Zenabis Global for C$235 million, and 48North Cannabis Corp. for about C$50 million. Upon completion, the combined company would likely hold a number one market-share in Canadian recreational cannabis, while also holding number one positions in four of Canada's largest markets: Alberta, British Columbia, Quebec and Ontario.

Much like Redecan, Pure Extracts Technologies Corp.(OTC:PRXTF) (CSE:PULL) (XFRA: A2QJAJ) has built an established brand (‘Pure Pulls’ and ‘Pure Chews’) across three of Canada’s largest markets (Alberta, BC, and Ontario).

Most recently, the company announced it had shipped its initial vape cartridge order via its distribution partner to Alberta Gaming, Liquor & Cannabis (AGLC).

“We’re excited to have shipped our first vape cart order to the Province of Alberta and are looking forward to a successful long-term relationship with AGLC that leads to a satisfied customer base and a significant contribution to our annual revenue,” Pure Extracts CEO, Ben Nikolaevsky, remarked. “We’ve created the high quality FSO vape products that consumers now demand and believe that we will quickly build brand loyalty with both legacy and new entrants in the vape space.”

Alberta is currently the second-largest province by cannabis sales in Canada. And the addition of vape sales has been a huge boost for the province as well.

“Q1 year-over-year vape sales increased in every market that we looked at, with increases ranging from just over 18% in Nevada to nearly 300% in Alberta,” said David Abernathy, Principal of Arcview Management Consulting who conducted a recent report on the vape industry. “Results from the study will be especially valuable for brands in emerging markets and for companies starting up in areas that are on the verge of being legalized.”

Pure Extracts’ previous grey market products successfully legitimized its Pure Pulls and Pure Chews brands which were acquired with a solid reputation among its customer base.

Soon, the company will have a total of 24 SKUs on the market, including soon to be released gummies in Alberta and British Columbia under the Pure Chews label. 

”We have had a very strong response from the provinces to both our proprietary Pure Chews blister packaging and our ultra-high potency CBD gummies,” noted Mr. Nikolaevsky.

However, as of June 23, 2021, Pure Extracts was trading at only C$25.29 million, despite its wide market exposure across multiple provinces and a JV deal lined up to produce products in Michigan as well. 

“We are really excited about launching our first US initiative into the dynamic Michigan market, especially with experienced and entrenched partners,” added Mr. Nikolaevsky. 

“There is strong demand throughout the state for the products we know best: full spectrum oil (FSO) vapes, live resin concentrates, and edibles.”

Other companies with extraction and branded products in their portfolios that are currently trading at much higher valuations are The Valens Company (OTC:VLNCF) (TSX:VLNS), Medipharm Labs Corp. (TSX:LABS) (OTC:MEDIF) and Neptune Wellness Solutions Inc. (NASDAQ:NEPT) (TSX:NEPT).

Medipharm Labs Corp. (TSX:LABS) (OTC:MEDIF) recently launched a line of High-CBD wellness oils in Quebec, shipping its first order of CBD 25 and CBD 50 formulas for retail sale by the province’s sole legal retailer for cannabis based products. 

“As our domestic Canadian market starts to recover and the Government works towards re-opening the economy, we remain excited about our growth prospects in Quebec as we launch new products and increase our local presence,” said Keith Strachan, President and Interim CEO, MediPharm Labs. “Quebec, one of the largest consumer markets in Canada, marks our seventh provincial distribution agreement. With our expanded footprint, we are now bringing our quality products to 95% of the retail market in Canada.”

In Canada, in addition to Quebec, MediPharm Labs’ cannabis products are available in Ontario, Nova Scotia, Alberta, British Columbia, Manitoba and Saskatchewan, with additional provinces expected to be added in 2021. As of June 23, 2021, MediPharm was valued at nearly C$120 million.

The Valens Company (OTC:VLNCF) (TSX:VLNS) made another step towards the US market, announcing it had completed the acquisition of leading US CBD company, Green Roads for US$40 million. If all the Milestones are met in 2022, the transaction represents approximately 4.5x fiscal 2022 EBITDA. As of June 23, 2021, The Valens Company was valued at ~C$555 million.

"With the closing of this Acquisition, Valens now has a significant presence in the largest cannabinoid market in the world, representing a monumental step in our international expansion strategy and furthering our vision of becoming a global manufacturer of cannabis consumer packaged goods,” Tyler Robson, Chief Executive Officer, Co-Founder and Chair of The Valens Company. “The combination of Valens and Green Roads makes for an unbeatable team, diversified distribution network, and unparalleled product development and manufacturing platform, which we expect will provide us the footprint to become one of the biggest players in the global cannabis health and wellness market."

Neptune Wellness Solutions Inc. (NASDAQ:NEPT) (TSX:NEPT) recently launched three new Mood Ring branded cannabis products, including THC capsules, THC oil, and Florida Citrus Kush Flower the first branded flower product in the province of British Columbia. The launch came shortly after the announcement of the launch of the brand PanHash, which includes two products with a high concentration of CBD (a cannabis oil and capsules) for the province of Quebec. The products are produced using Neptune’s proprietary cold ethanol extraction process, which consumes significantly less energy than traditional CO2 extraction, preserving a high concentration of the plant's terpenes. Neptune cannabis products are available for adult-use in Alberta, British Columbia and Ontario. As of June 23, 2021, Neptune Wellness was valued at C$198.6 million.

"Entrance into Quebec, one of Canada's most populated provinces, is an important milestone in the expansion of our cannabis consumer packaged goods product lines,” said Michael Cammarata, Neptune's President and Chief Executive Officer. 

According the company’s press release: “With the launch of PanHash in Quebec, Neptune's PanHash™ and Mood Ring™ products may be sold in up to 1,600 locationsthroughout Canada and broadens distribution to more than 80% of Canada's total addressable market for legal cannabis.”

HEXO Corp. (NYSE:HEXO) (TSX:HEXO) completed the acquisition of Redecan, which came with leading market share across a number of categories, for a purchase price of C$925 million payable in cash and through the issuance of common shares of HEXO and subject to certain customary adjustments.

“We articulated a plan to become a top three cannabis player in the Canadian adult-use market,” said HEXO CEO and co-founder Sebastien St-Louis. “With today’s announcement, we believe that we are on the verge of surpassing that objective to become the no.1 licensed producer by recreational market share. Building on our strong market momentum, the combination of HEXO and Redecan reinforces our position as an industry leader and creates a robust foundation for growth, efficiency at scale and improved financial results.”

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