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(This story has been updated with comments from Hexo’s CEO).

Cannabis producer Hexo Corp. based in Ottawa, Ontario, reached a definitive agreement Tuesday to buy rival Zenabis Global for C$235 million ($185 million).

The proposed acquisition of Zenabis, based in Vancouver, British Columbia, would enable Hexo to gain a foothold in the European medical marijuana market and become the third largest producer in Canada’s recreational medicine market, said Sebastien St. Denis, Hexo’s president. Louis in a telephone interview with Marijuana Business Daily.

Under the terms of the proposed program, Zenabis shareholders will receive 0.01772 Hexo shares per Zenabis share, representing a 19% premium to the 12-day average. In February, the companies stated in a press release that they had announced the proposed acquisition.

Both companies have sold infrastructure in recent years and reported significant losses.

Hexo lost C$4.2 million in the previous quarter and C$546.5 million in the previous fiscal year.

In the nine months prior to June 30, Zenabis realized a total of A$40.5 million in September 2020 and a further A$127 million in fiscal 2019.

We are pursuing this transaction because we believe it is a great deal for our shareholders and allows Hexo to accelerate its national and international growth, while maintaining a near-term need for additional licensed capacity, Mr. St. Louis said in a press release.

Hexo’s growth strategy includes expansion of our global presence, and this acquisition is an important step in that direction.

The transaction has been approved by the Boards of Directors of the respective companies, but is subject to approval by Zenabis’ shareholders.

Louis told MJBizDaily that the deal would make Hexo one of Canada’s largest manufacturers.

Together, the two companies have achieved $53.2 million in quarterly revenue in recent quarters.

This is close to the sales of rival producer Aurora Cannabis, which reported sales of $67 million. CA$ in the previous quarter.

The deal will also allow Hexo to gain a foothold in the European medical marijuana market.

The agreement gives Hexo immediate access to the European market for medicinal cannabis through its local partner Zenabis, with a branch in the European Union that supplies pharmaceutical products to the European market, the company said.

According to an update from Zenabis’ investor last summer, the company reached an agreement to supply the growing Israeli and Australian markets.

Hexo’s decision comes at a time when some competing Canadian companies are reducing their presence in the European market.

For example, Aurora cannabis and canopy growth are included in 2020 expansion plans in Europe.

A Marijuana Business Daily report on Europe published last year estimated that annual retail sales in Germany would reach at least 170 million euros ($200 million) by 2019. By comparison, Canadian spending in that year was about $618 million.

Hexo also stated that through the proposed agreement it would gain access to a greenhouse complex totaling approximately 2.1 million square feet, which provides diversified growing and production methods.

According to the press release, Zenabis is also bringing in two in-house production facilities, which will allow Hexo to produce approximately 111,200 kg (245,154 pounds) annually.

Louis told MJBizDaily that the Zenabis facility is used to produce high-quality products that require a small acreage, while the Hexo greenhouse in Quebec is more focused on large-scale production.

Less than a year ago, Hexo sold for about C$10.25 million a large greenhouse in Niagara, Ontario, which it had previously acquired in a C$263 million transaction to purchase Newstrike Brands.

Canada also has a growing stock surplus, which has reached a staggering 1.06 million kilograms after the country’s first major plowing season – when most of the fall harvest is harvested outdoors.

Late last year, Zenabis entered into a conditional agreement to sell one of its properties in British Columbia for half the original asking price.

At 30. As of September 2020, Zenabs had C$4.8 million in cash.

At the end of the previous quarter ended December 31, 2009, the Group had $149.8 million in cash.

The Company’s shares are traded under the name HEXO on the New York Stock Exchange and the Toronto Stock Exchange.

Matt Lamers is the international editor of the Marijuana Business Daily, in the Toronto area. He can be contacted at [email protected].

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