Weed company pressed to make deal by activist investor
Riposte Capital urges Hexo to seek investment, merger or sale
Hexo Corp. has drawn interest from an occasional activist investor, who fears the Canadian marijuana company will miss out on a frenzy of deal making in the budding industry.
New York-based Riposte Capital LLC, Hexo’s second-largest shareholder with a roughly 2.5% stake, plans to urge the company to explore strategic alternatives and take advantage of the cannabis sector’s rapid growth, according to people familiar with the matter. The options could include selling the company, seeking a merger partner or soliciting a large investment from Molson Coors Brewing Co., with which it has a joint venture to develop nonalcoholic, cannabisinfused beverages, the people said.
Hexo Chief Executive Sébastien St-Louis said while he appreciates hearing from shareholders, he is focused on setting up additional joint ventures with large consumer packaged goods companies that will bring Hexo into new industries, such as cosmetics and food.
“It’s very likely we’ll get acquired at some point, whether that is in one year or 10 years,” he said in an interview.
Molson Coors declined to comment.
Quebec-based Hexo grows and distributes medical marijuana under brands including Time of Day with products like Good Morning and Bedtime. It also sells cannabis powder and oils and will begin selling recreational marijuana when it becomes legal in Canada in mid-October.
Shares of Hexo, which trades on the Toronto Stock Exchange and has a market value of just over CAD1.1 billion ($870 million), have surged over 300% in the past year as investors have driven up the value of pot stocks.
Riposte, which has invested in Hexo for nearly a year, believes the company is in an enviable position, having the Molson Coors joint venture and a potentially lucrative government contract as the preferred recreational cannabis supplier in Quebec.
But its stock still trades at a discount to peers, which “significantly hampers the company in the race for global growth and expansion,” Riposte says in a draft letter to Hexo’s board that was viewed by The Wall Street Journal. The letter could be sent as soon as Thursday, according to the people familiar with the matter.
The growing acceptance of marijuana use in Canada and much of the U.S. has sparked a whirl of recent deal activity. In addition to Molson Coors’ venture with Hexo, Corona beer seller Constellation Brands Inc. announced plans to invest nearly $4 billion to increase its stake in Canopy Growth Corp. Tilray Inc. became the first cannabis company to go public on a major U.S. exchange when it debuted on Nasdaq in July. Those shares have since rocketed upward, including a 17% gain Wednesday.
Riposte, which has less than $200 million under management, isn’t usually an activist investor.
The firm, founded in 2013, focuses on transportation, leisure and financial companies but occasionally invests in other stocks it believes are misunderstood or overlooked.