On Thursday Tilray Brands revealed that it plans to acquire up to $211 million (267.5 million Canadian dollars) in outstanding senior secured notes issued by Hexo Corp.
The move would throw the company’s rival a lifeline and strike an alliance with the Quebec cannabis producer.
Under the terms of the proposed deal, the notes would be amended to permit Tilray to exercise conversion rights at a price of 90 Canadian cents ($0.71) per Hexo share and acquire a significant stake, approximately 40%, of the company.
It was last October that auditor PricewaterhouseCoopers had warned of “substantial doubt” about Hexo’s ability to continue as a going concern over debt repayments issue.
The debt purchase, when approved, would potentially address those issues.
Tilray CEO Irwin Simon said the proposed deal would be good for both companies, as it would effectively initiate a strategic alliance between two of the top marijuana producers in Canada “with complementary brand portfolios.”
Simon said the companies expect to realize commercial and production efficiency savings of up to CA$50 million within two years, to be shared evenly.
The notes are currently held by funds affiliated with HT Investments MA (HTI) and the maturity date of the notes would be extended by three years, to May 1, 2026.
Hexo would not receive any proceeds as a result of Tilray’s proposed purchase of the notes from HTI.
The notes would bear an interest rate of 10% per year from the date of closing, and interest would be paid to Tilray in cash in the first year. An initial conversion price of CA$0.90 implies that Tilray has a right to convert into approximately 37% of Hexo’s shares, as of March 2.
