What happened
Shares of Canadian cannabis company HEXO (HEXO) slid Tuesday, as the company announced the closing of one acquisition on the heels of another recent large purchase. As of 2:45 p.m. EDT, shares of HEXO were down about 6%.
So what
Investors seem to be digesting news of a large acquisition announced late last week while another previously announced merger closed today. The latest announcement for HEXO to buy Canadian grower Redecan for the equivalent of about $765 million came after the company had already spent over $230 million this year to grow its offerings and footprint. Today's drop comes at the same time that peer Canopy Growth (CGC -10.51%) announced disappointing financial results.
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Now what
Though Canopy Growth assured investors it was still on track for positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year, the quarterly results disappointed investors. After HEXO spent about $1 billion to grow, investors may be worried that the returns won't materialize fast enough -- or at all.
HEXO's purchase of Redecan will be paid in a mix of shares and cash and will create what the company says will be the Canadian market leader in recreational-cannabis sales. In an all-share transaction announced earlier in May, HEXO purchased competitor 48North Cannabis to bolster its premium flower brand offerings.
Today, HEXO announced the closure of its arrangement to acquire Zenabis Global in yet another previously announced all-share transaction. That transaction is meant to bolster domestic sales, but also will give HEXO access to Europe's medical-cannabis market.
While the growth could help drive HEXO's long-term success, investors may be wary of the share dilution and cash spent, particularly in light of Canopy's disappointing announcement today.
