A new joint venture could help two cannabis stocks boost their value

177 0

Tilray and Hexo could join forces, which would provide both with needed support

A debt deal and a joint venture (JV) could become the impetus for two underperforming marijuana stocks to soar higher. So far this year, health care is the second-worst performing sector and this is due to underperforming cannabis stocks. Although Tilray Brands is losing so far, its announcement of a strategic partnership with Hexo could get things on a better track.

Once Tilray shareholders give the go-ahead, the company will take a significant minority stake (37%) in its rival through a debt deal. The transaction stipulates that Hexo is obligated to sell $211 million in senior secured convertible notes to Tilray at $0.90 on the dollar.

In addition to this debt agreement, Hexo and Tilray have joined forces to launch a joint venture. Each company will begin producing beverages, pre-rolls and groceries over the next two years. Cost savings are expected to be approximately $50 million.

Hexo currently trades at $0.73 per share, while Tilray is trading at $7.35 per share. Both stocks are down similarly (17%) year-to-date. Net earnings reports from both producers are still pending. The essential focus this time is to reduce costs so that cash flows are positively affected. The prospective partners urgently need a boost to lift their sagging fortunes.

“Doing this with Hexo creates tremendous market share opportunities with consumers and helps send the right message to the market,” said Tilray CEO Irwin Simon. In his view, the deal will strengthen and solidify the companies’ operations, not only in Canada but also in Europe and its medical cannabis market.