Tilray Brands, Inc. (“
Tilray Brands” or the
“
Company”) (Nasdaq | TSX: TLRY), a leading global
cannabis-lifestyle and consumer packaged goods company inspiring
and empowering the worldwide community to live their very best
life, today announced proposed agreements for a commercial and
financial partnership with HEXO Corp. (“
HEXO”)
(Nasdaq | TSX: HEXO) that would bring together Canada’s top two
cannabis market share leaders, strengthening their respective
positions and setting the stage for increased production
efficiencies amid competitive market dynamics.
Under the terms of the proposed agreement, Tilray Brands would
acquire up to US$211 million of senior secured convertible notes
(“Notes”) that were issued by HEXO and are
currently held by funds affiliated with HT Investments MA LLC
(“HTI”) (“Transaction”). The
Notes would be amended to permit Tilray Brands to exercise
conversion rights at a price of C$0.90 per HEXO Share and acquire a
significant equity ownership position in HEXO, driving meaningful,
additional upside and direct participation in HEXO’s considerable
growth opportunities.
Irwin D. Simon, Tilray Brands’ Chairman and CEO,
said, “We believe this proposed Transaction would be a win-win for
Tilray Brands and HEXO as it would launch a strategic partnership
between two leading Canadian cannabis producers with complementary
brand portfolios. For us, it provides a path for meaningful future
equity ownership of HEXO, and enables us to participate in HEXO’s
share price appreciation as it continues to execute on its growth
initiatives. We also expect to realize further commercial and
production efficiency savings of up to C$50 million within two
years, which would be shared equally and would allow us to continue
being the leading, low-cost Canadian producer. I look forward to
working with HEXO’s management team and Board to create additional
brand and shareholder value.”
The strategic alliance between Tilray Brands and
HEXO would provide several financial and strategic benefits,
including:
- Accretion and Flexibility: the acquisition of
the Notes by Tilray Brands would be immediately accretive to Tilray
Brands. As amended, the terms of the Notes will provide that the
Notes shall bear interest at a rate of 10% per annum from the date
of closing. During the first year, the interest will be paid in
cash and during the remainder of the term, the Notes will be paid
half in cash in each year and the remaining half will be added to
the principal amount as a payment-in kind (“PIK”)
when the payments are due and any payments of such PIK will be made
in cash at the time of maturity or paid in additional HEXO Shares
upon conversion (if converted prior to maturity). In addition,
Tilray Brands shall have the flexibility to either be paid the
principal amount plus any accrued interest and PIK upon the
maturity of the Notes or, prior to maturity, convert the principal
amount plus any accrued interest and PIK into a substantial
ownership position in HEXO.
- Substantial Synergies: the proposed alliance
between Tilray Brands and HEXO is further expected to deliver up to
C$50 million of cost synergies, to be shared equally, within two
years of the completion of the Transaction. Both companies have
been working together to evaluate cost saving synergies as well as
other production efficiencies, including with respect to
cultivation and processing services, certain Cannabis 2.0 products,
including pre-rolls, beverages and edibles, as well as shared
services and procurement.
- Increases Product Breadth and Commitment to
Innovation: Tilray Brands and HEXO bring together industry
leading expertise in the global cannabis industry, including
cannabis cultivation, product innovation, brand building, and
distribution. Leveraging both companies’ commitment to innovation
and operational efficiencies, both companies would share their
respective expertise and know-how to strengthen market positioning
and capitalize on opportunities for growth through a broadened
product offering and accelerated CPG innovation.
Upon closing, Tilray Brands will nominate Denise Faltischek to
the HEXO Board of Directors (“Board”), in addition
to appointing one Board observer.
Transaction Details
Under the terms of the Transaction, and subject to negotiation
of the definitive documents and the satisfaction of specific
conditions, Tilray Brands would acquire 100% of the remaining
US$211 million outstanding principal balance of the Notes, all of
which were originally issued by HEXO to HTI. As consideration for
Tilray Brands’ interest in the Notes, Tilray Brands would pay 95%
of the then outstanding principal balance for the Notes
(“Purchase Price”), which includes accrued and
unpaid interest on the Notes, as well as other agreed direct and
indirect costs incurred by Tilray Brands in connection with the
Transaction. Until closing, HTI may continue to redeem the Notes
pursuant to their terms; however, in no event shall the outstanding
principal balance of the Notes, when ultimately purchased by Tilray
Brands, be less than US$182 million.
Among the various amendments to be made to the Notes, the
initial conversion price would be C$0.90 (subject to adjustments as
set forth in the certificates for the Notes and the indenture
governing the Notes) (“Conversion Price”), implies
that, as at March 2, 2022, Tilray Brands has the right to convert
into approximately 37% of HEXO Shares (on a basic basis). The
Purchase Price would be satisfied in cash, common shares of Tilray
Brands (“Tilray Shares”), or a combination
thereof, at Tilray Brands’ sole discretion.
HEXO will not receive any proceeds as a result of Tilray Brands’
proposed purchase of the Notes from HTI.
In connection with the proposed Transaction, the parties would
amend and restate the indenture governing the Notes to, among other
things, (i) extend the maturity date by three (3) years, to May 1,
2026; (ii) provide for the revised interest amounts previously
identified; and (iii) amend or eliminate certain affirmative and
negative covenants, including as it relates to minimum liquidity
and minimum EBITDA covenants. The Notes will also provide Tilray
Brands with subscription rights and top-up rights in respect of all
future equity and debt issuances by HEXO following closing, other
than in respect of certain customary exceptions.
Commercial Transactions
As part of the proposed Transaction, HEXO and Tilray Brands
would work together, in good faith, to evaluate cost saving
synergies as well as other production efficiencies and enter into
definitive agreements related to certain mutually agreed commercial
transactions. These mutually beneficial commercial transactions are
expected to include (i) cultivation and processing services, (ii)
certain Cannabis 2.0 products (including pre-rolls), each with a
view to achieving optimal profitability between Tilray Brands and
HEXO, and (iii) establishing a joint venture company that will
provide shared services to both companies. Total savings, which
will be shared equally between Tilray Brands and HEXO, are expected
to be up to C$50 million within two years.
Transaction Conditions
The proposed Transaction will be subject to a number of
conditions, including (i) execution of definitive documentation
relating to the Notes; (ii) completion of all required amendments
to the terms of the Notes; (iii) receipt of approvals from the
Toronto Stock Exchange and the Nasdaq Stock Market LLC,
satisfactory to both Tilray Brands and HEXO, as applicable; (iv)
Tilray Brands’ satisfactory completion of confirmatory financial
due diligence; (v) receipt of all consents and approvals required
by any regulatory authorities; (vi) final approval of the boards of
directors of each of Tilray Brands and HEXO; (vii) receipt of
shareholder approval from the HEXO shareholders; (viii) no material
adverse effect having occurred in respect of HEXO; and (ix) a
committed equity line being made available to HEXO for up to C$180
million on terms acceptable to both HEXO and Tilray Brands.
Conference Call
Tilray Brands and HEXO will host a conference call to discuss
today’s announcement at 8:30 a.m. ET, details of which are provided
below.
Call-in Number: (877) 407-0792 from Canada and the U.S. or (201)
689-8263 from international locations. Please dial in at least 10
minutes prior to the start time.
There will be a simultaneous, live webcast available on the
Investors section of Tilray’s website at www.Tilray.com. The
webcast will also be archived.
For further details, investors and other security holders may
also obtain a copy of the presentation associated with the
transaction on the Investors section of Tilray Brands’ website at
www.Tilray.com.
Transaction Advisors
Canaccord Genuity Corp. is serving as financial advisor, and DLA
Piper LLP is serving as legal counsel, to Tilray Brands.
Lazard is serving as financial advisor, and Norton Rose
Fulbright Canada LLP is serving as legal counsel, to HEXO.
Tilray Brands Update; Prospectus Supplement
Filing
Tilray Brands also announced today that it has
filed a prospectus supplement with the U.S. Securities and Exchange
Commission (“SEC”), under which it may offer and
sell shares of its common stock (“Common Stock”)
having an aggregate offering value of up to US$400,000,000 from
time to time through an at-the-market equity program (“ATM
Program”).
The Company intends to use the net proceeds from
sales of its Common Stock under the ATM Program offering to
strengthen its balance sheet (including through debt repayments)
and to fund accretive acquisitions, including potential
acquisitions of cannabis assets upon federal permissibility.
The Company has entered into an at-the-market
issuance sales agreement with Jefferies LLC
(“Jefferies”) and Canaccord Genuity LLC
(“Canaccord Genuity”). Pursuant to the sales
agreement, Jefferies and Canaccord Genuity may sell the Company’s
Common Stock in transactions that are deemed an “at-the-market
offering” defined in Rule 415 under the Securities Act of 1933, as
amended, including sales made directly on or through the Nasdaq
Global Select Market. The timing and amount of any such sales will
be determined by a variety of factors considered by the Company.
Sales may be made at market prices prevailing at the time of a sale
or at prices related to prevailing market prices. As a result,
sales prices may vary.
A registration statement on Form S-3 (File No.
333-233703) utilizing a shelf registration process, including a
base prospectus relating to Tilray Brands’ securities was filed
with the SEC on September 11, 2019 and became effective
automatically upon filing, and a prospectus supplement and
accompanying prospectus relating to the ATM Program was filed with
the SEC on March 3, 2022. Prospective investors should read the
prospectus supplement and accompanying prospectus, together with
the documents incorporated by reference therein. Prospective
investors may obtain these documents for free by visiting EDGAR on
the SEC's website at www.sec.gov. Alternatively, a copy of the
prospectus supplement and accompanying prospectus relating to the
offering may be obtained from Jefferies LLC, 520 Madison Avenue,
New York, NY 10022 or by telephone at (877) 821-7388 or by email at
Prospectus_Department@Jefferies.com.
About Tilray Brands
Tilray Brands, Inc. (Nasdaq: TLRY; TSX: TLRY),
is a leading global cannabis-lifestyle and consumer packaged goods
company with operations in Canada, the United States, Europe,
Australia, and Latin America that is changing people's lives for
the better – one person at a time. Tilray Brands delivers on this
mission by inspiring and empowering the worldwide community to live
their very best life and providing access to products that meet the
needs of their mind, body, and soul while invoking wellbeing.
Patients and consumers trust Tilray Brands to deliver a cultivated
experience and health and wellbeing through high-quality,
differentiated brands and innovative products. A pioneer in
cannabis research, cultivation, and distribution, Tilray Brands’
unprecedented production platform supports over 20 brands in over
20 countries, including comprehensive cannabis offerings,
hemp-based foods, and craft beverages.
For more information on how we open a world of
wellbeing, visit www.Tilray.com.
Cautionary Statement Concerning Forward-Looking
Statements
Certain statements in this communication that are not historical
facts constitute forward-looking information or forward-looking
statements (together, “forward-looking statements”) under Canadian
securities laws and within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are intended to
be subject to the “safe harbor” created by those sections and other
applicable laws. Forward-looking statements can be identified by
words such as “forecast,” “future,” “should,” “could,” “enable,”
“potential,” “contemplate,” “believe,” “anticipate,” “estimate,”
“plan,” “expect,” “intend,” “may,” “project,” “will,” “would” and
the negative of these terms or similar expressions, although not
all forward-looking statements contain these identifying words.
Certain material factors, estimates, goals, projections or
assumptions were used in drawing the conclusions contained in the
forward-looking statements throughout this communication.
Forward-looking statements include statements regarding our
intentions, beliefs, projections, outlook, analyses or current
expectations concerning, among other things: the Company
successfully negotiating and executing definitive agreements in
connection with the proposed Transaction; expected production
efficiencies and potential cost saving synergies resulting from the
Transaction or other proposed commercial arrangements; the
Company’s ability to sell Common Stock under the ATM Program; and
the Company’s ability to commercialize new and innovative products.
Many factors could cause actual results, performance or achievement
to be materially different from any forward-looking statements, and
other risks and uncertainties not presently known to the Company or
that the Company deems immaterial could also cause actual results
or events to differ materially from those expressed in the
forward-looking statements contained herein. For a more detailed
discussion of these risks and other factors, see the most recently
filed annual information form of Tilray and the Annual Report on
Form 10-K (and other periodic reports filed with the SEC) of Tilray
made with the SEC and available on EDGAR. The forward-looking
statements included in this communication are made as of the date
of this communication and the Company does not undertake any
obligation to publicly update such forward-looking statements to
reflect new information, subsequent events or otherwise unless
required by applicable securities laws.
For further information:
Tilray BrandsMedia: Berrin Noorata, news@tilray.comInvestors:
Raphael Gross, +1-203-682-8253, Raphael.Gross@icrinc.com
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