Tilray Brands, Inc. (NASDAQ:TLRY) (TSX:TLRY) has closed its acquisition from HT Investments MA LLC (“HTI”) of the secured convertible note issued by HEXO Corp. (NASDAQ:HEXO)
Irwin D. Simon, Tilray Brands’ chairman and CEO, stated, “We are excited to close on this strategic transaction and alliance with HEXO, which is expected to provide several financial and commercial benefits, including substantial cost-savings synergies, increased strength in product innovation to capitalize on for market opportunities in Canada and internationally, along with the U.S., upon federal legalization. This is a unique opportunity to realize our vision to enhance consumer experience and lay the groundwork for the next evolution of Canadian cannabis.”
The strategic alliance between Tilray Brands and HEXO is expected to deliver up to $80 million of shared cost-savings within the next two years. Both companies have identified operational and production efficiencies with respect to cultivation and processing services, including pre-rolls, beverages and edibles, as well as shared services and procurement.
As a result of the substantial savings, as well as the annual advisory fee, the acquisition of the HEXO note by Tilray Brands will be immediately accretive to the company.
Transaction Details
Tilray Brands acquired the HEXO note from HTI, which has a current principal balance of $173.7 million outstanding. The purchase price paid to HTI for the HEXO Note was $155 million, reflecting a 10.8% discount on the outstanding principal balance.
The purchase price was satisfied, in part, by Tilray Brands’ issuance to HTI of a new $50 million convertible unsecured note and approximately 33.3 million shares in class 2 common stock of Tilray Brands. The Tilray convertible note bears interest at a rate of 4.00% per annum, calculated and paid on a quarterly basis and matures on September 1, 2023. HEXO did not receive any proceeds as a result of Tilray Brands’ purchase of the HEXO note from HTI.
Tilray Brands has nominated two directors to HEXO’s board of directors and one board observer.
Commercial Agreements
Tilray Brands and HEXO also entered into certain commercial agreements covering the following key areas:
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Each party will complete production and processing as a third-party manufacturer of certain products for the other party.
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HEXO will source its cannabis products for international markets, excluding Canada and the US, from Tilray Brands.
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(HEXO and Tilray Brands will share savings related to specified facilities optimization activities, procurement, general and administrative costs, including insurance and certain shared services, and certain production and processing activities for straight-edge pre-rolls, edibles and beverages. The commercial agreements further provide that HEXO shall pay Tilray Brands an annual fee of $18 million for advisory services with respect to cultivation, operation, and production matters.
Early Warning Reporting Disclosure
In connection with Tilray Brands’ acquisition of the HEXO note, has acquired the right to convert the HEXO note into approximately 48% of the outstanding common stock of HEXO, on a non-diluted basis. Prior to the acquisition, Tilray Brands did not beneficially own or control any of the common stock of HEXO.
Although not in its present plans, from time to time, Tilray Brands may hold discussions with HEXO’s management, its board of directors, other stockholders, and other relevant parties concerning the business, operations, board composition, management, strategy and future plans of HEXO. Tilray Brands reserves the right to acquire additional securities of HEXO, including without limitation common shares, and/or to dispose of any or all of its interests under the HEXO note.
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