Canadian cannabis producers Tilray Brands (TSX:TLRY) and Hexo Corp. (TSX:HEXO) are forming a new strategic partnership.
The joint venture will see Tilray take a minority stake in its financially troubled rival Hexo. In a news release, Tilray said it will acquire up to $211 million U.S. of Hexo’s debt, an investment that will give it the right to own 37% of Hexo.
In addition to the debt deal, the two companies said their joint venture will help the companies produce cannabis products such as pre-rolls, beverages and edibles within the next two years while leading to $50 million in cost efficiencies.
The agreement joins two of Canada’s biggest cannabis producers together at a time of rampant competition and market consolidation. Both companies, which have yet to turn a profit, are also included in an industry-wide effort to cut costs to help improve cash flow challenges that many Canadian cannabis producers are facing.
Irwin Simon, Tilray’s chief executive officer (CEO), said the deal will strengthen both companies in Canada, as well as in Europe’s medical cannabis market.
Hexo has been struggling with mounting losses, an anemic share price, and a board battle in recent months. The company, whose stock currently trades for $0.63 U.S., has been threatened with delisting if it cannot move its share price above $1 U.S.
The new joint venture is subject to Tilray shareholder approval, which is expected within 90 days.
Hexo stock rose nearly 10% on news of the deal with Tilray. However, over the past year, Hexo’s share price has declined 91%, falling from a 52-week high of $8.50 U.S. amid mounting financial problems.
Tilray’s shares fell 5% to $5.54 U.S. on news of its tie-up with Hexo. In the last 12-months, Tilray’s stock has fallen 78%, including a 25% decline so far this year.
