Who Is The Winner In The Newly Formed Strategic Alliance Between Tilray and Hexo?

Earlier this week, Tilray Brands, Inc. (Nasdaq: TLRY) (TSX: TLRY) completed the acquisition of a secured convertible note which was previously issued by HEXO Corporation (Nasdaq: HEXO) (TSX: HEXO) and we consider this to be a significant development for both operators. 

The investment is part of a strategic alliance with HEXO which is expected to provide Tilray with several financial and commercial benefits that include but are not limited to the following: 

1. Substantial cost-savings synergies and the companies expect the strategic alliance to deliver up to $80 million of shared cost-savings within the next two years.
2. Increased strength in product innovation to capitalize on for market opportunities in Canada and abroad
3. A more attractive platform to capitalize on burgeoning markets in the US (upon federal legalization)

The transaction is expected to be immediately accretive for Tilray and we believe our readers should be aware of the impact the transaction has on revenue, EBITDA, cash flow, and earnings per share (EPS). 

When analyzing the impact the transaction will have on HEXO, we determined that the alliance should result in the company having better financial flexibility. The transaction is also expected to accelerate HEXO’s strategy to become a profitable business and we will monitor how the alliance helps the company get back on track. 

By leveraging both companies’ commitment to innovation and operational efficiencies, the alliance is expected to better position each business to capitalize on growth opportunities through a broader product offering and consumer packaged goods (CPG) innovation.

While we continue to have a cautiously optimistic outlook on the Canadian cannabis industry, we believe the agreement makes both HEXO and Tilray a more attractive operator. So far, 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. We are favorable on the opportunities that have already been identified by the management team and will continue to closely follow the story.

If you are interested in learning more about the alliance between HEXO and Tilray, please send an email to support@technical420.com with the subject “HEXO and Tilray” to be added to our distribution list. 

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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