Cannabis Producer Hexo Buys Rival Redecan Pharm For $925 Million

Hexo Corp. (TSX:HEXO) is buying privately held cannabis producer Redecan Pharm in a deal worth $925 million.

Hexo will pay $400 million in cash and $525 million in shares to acquire Redecan. After the deal closes, Redecan shareholders will own 31% of the combined entity and will be permitted to nominate two directors to Hexo’s board of directors.

The transaction is subject to regulatory approvals and a vote by Hexo shareholders to approve the share issuance. Hexo said it expects the transaction to close in the third quarter of this year.

The deal marks the latest salvo among producers to win market share in Canada's hotly-contested legal cannabis industry.

Canadian cannabis companies have been in a period of consolidation over the past six months as an oversupplied market coupled with a highly-regulated domestic industry that is struggling to become profitable has forced some producers to seek growth through mergers and acquisitions.

The acquisition of Redecan follows a similar strategy employed by Hexo over the past several months to win more market share in Canada's crowded cannabis market, where there are more than 600 licensed producers able to grow or sell legal marijuana.

The Ottawa-based company said it would buy Zenabis Global Inc.(TSX:ZENA) for $235 million in February, which gave Hexo a presence in the European medical cannabis market. Hexo also announced earlier this month that it would buy 48North Cannabis for $50 million.

Including Zenabis and 48North, a merged Hexo-Redecan company would control about 14% of the Canadian recreational cannabis market, according to data from industry consultancy Hifyre. That would be just below the 18% that Tilray (NASDAQ:TLRY) controls and the 14% share that Canopy Growth would have once it closes its deal to buy Supreme Cannabis.

Redecan has been among the top sellers of dried flower, pre-rolls and vape products in the legal market. The company generated $58 million in Canadian sales in the three-month period from February to April of this year.