HEXO (HEXO) announced Monday it would be acquiring 48North Cannabis Corp, a cannabis company operating in the Canadian health and wellness market, in an all-stock deal valued at approximately C$50 million. HEXO creates and distributes packaged goods to serve the global commercial cannabis market.
For each common share of 48North held, investors will receive 0.02366 of a HEXO common share, a premium of approximately 20% based on the 10-day average price of 48North common stock.
HEXO’s CEO and co-founder Sebastien St-Louis said, “As we continue down our path towards achieving a top-two position in Canada by adult-use sales, we are looking forward to welcoming the 48North team into the HEXO family. 48North’s innovative product portfolio complements HEXO’s existing brands which, combined with their additional market penetration, will further strengthen HEXO’s position in the Canadian market. We expect the deal could offer up to C$12 million worth of accretive synergies within one year following the close and ideally position HEXO to continue executing on our domestic and international growth strategy.”
The board of directors for both companies unanimously voted to approve the deal but it has yet to be approved by a two-thirds majority vote of 48North shareholders. (See HEXO stock analysis on TipRanks)
Two months ago, CIBC analyst John Zamparo reiterated a Buy rating on HEXO but lowered its price target to C$13.00 (from C$13.50) for 75% upside potential.
Zamparo views the 48North’s deal positively. He said in a note to clients, “We look favourably upon M&A within the cannabis sector, as material cost synergies exist, particularly in cultivation, and we believe well-funded larger players can opportunistically acquire smaller firms with capitalization concerns.”
The rest of the Street is cautiously optimistic on HEXO with a Moderate Buy consensus rating, based on 2 Buys and 5 Holds. The average analyst price target of C$10.88 implies 46% upside potential from current levels. Shares have risen approximately 55% year-to-date.
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