Tilray discloses $1.2B quarterly loss, plan to buy cannabis rival Hexo for $56M

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Canadian cannabis producer Tilray Brands reported a net loss of $1.2 billion (1.5 billion Canadian dollars) for its quarter ended in February and said it agreed to buy troubled rival Hexo Corp. for $56 million.

According to a news release, Canada- and U.S.-based Tilray attributed the quarterly red ink to its declining market capitalization and a net asset reduction resulting from higher interest rates.

The company, which has offices in Leamington, Ontario, and New York, also booked an inventory valuation write-down worth $55 million.

Tilray said the steep loss has no impact on the company’s compliance with debt covenants, its cash flows or available liquidity.

Sales for the December-February quarter missed analysts’ expectations, coming in at $145.6 million, down from $151.9 million one year earlier.

Cannabis appeared to be a drag on the company’s revenue, with sales from its marijuana business falling to $47.5 million for the quarter, down from $55 million in the three months through Feb. 28, 2022.

By category:

  • Distribution revenue rose 4.5% over the same period last year to $65.4 million.
  • Net beverage alcohol revenue gained 5% to $20.6 million.
  • Wellness revenue decreased 18% year-over-year to $12.2 million.

Tilray said it projects delivering positive free cash flow by the end of the current financial year, which concludes later this spring.

Earnings before interest, taxes, depreciation and amortization for the quarter came out to a positive $14 million.

International sales were another drag on Tilray’s business in the third quarter.

Tilray’s gross revenue from international cannabis products plunged 39% year-over-year to $9.7 million in the third quarter.

By market channel, gross revenue from:

  • Canadian medical cannabis products slipped 14.4% year-over-year to $6 million in the quarter.
  • Canadian adult-use cannabis products rose 4.2% to $45.3 million.
  • Wholesale cannabis products fell to $58,000, down sharply from $2.8 million in the previous December-February quarter.

Meanwhile, Tilray said in the release that it entered into a definitive agreement to acquire Ottawa, Ontario-based Hexo for an aggregate purchase price of approximately $56 million.

Tilray plans to finance the deal by issuing 0.4352 of Tilray Common Stock for each outstanding Hexo share.

This comes after the two businesses entered a strategic alliance last year.

Hexo has lost just shy of CA$2 billion ($1.48 billion) since 2017.

Details on the acquisition arrangement between Tilray and Hexo are available here and here.

Tilray’s shares trade as TLRY on the Nasdaq and Toronto Stock Exchange.

Hexo’s  shares are traded as HEXO on the Nasdaq and Toronto Stock Exchange.