Merger of WeedMD and Hiku Set to Create New Cannabis Player

The medical and recreational business of cannabis is coming together with the announcement of a new merger in the industry.

On Thursday (April 19) it was revealed that Hiku Brands (CSE:HIKU) and WeedMD (TSXV:WMD) would merge all businesses and assets in order to create a vertically integrated company. Continuing the momentum, predicted by experts, of consolidation alongside merger and acquisition deals.

The new entity is expected to trade on the TSX Venture Exchange, according to the announcement from the two companies.

“Upon completion of the transaction, existing Hiku and WeedMD shareholders will own approximately 51.75 [percent] and 48.25 percent] of the combined company, respectively, on a fully-diluted basis,” the announcement reads.

Consolidation continues in the Canadian cannabis market

As the industry in Canada moves closer towards legalization, experts have started to ask for a more thorough breakdown of the companies in the public space — specifically analyzing new metrics beyond production capacities.

Since Hiku’s play has been on targeting consumers with brands, Alan Gertner, CEO of Hiku, agrees with this vision and said during a conference call on Friday (April 20) that the new partnership will be able to capitalize on both retail and medical.

“Currently, a lot of the market, a lot of the focus in cannabis in Canada is solely on capacity and solely on the existing medical market. Together Hiku and WeedMD bring together differentiated players who focus on high value…” Gertner said.

“We are very excited to control our supply chain all the way through which will allow us to have brands that have a consistency and high supply behind them,” Keith Merker, chief financial officer of WeedMD, said during the call.

Production updates from WeedMD

During the question period of the call, analyst Neal Gilmer with Haywood Securities asked if the new company is considering accelerating the increase of production facility from WeedMD given the expected shortage of cannabis.

Merker answered by saying WeedMD is currently focused on the final stages of retrofitting a 5-acre lot of hybrid greenhouse growth. Additionally, the company is in discussions to work on the neighboring 7 acres, which he said would elevate the total capacity of the company to over 35 tonnes.

Gertner revealed the current plan for Hiku and now this new entity is to open between 20 and 30 retail cannabis stores across Canada. The management team of Hiku said it is confident in its ability to open these stores thanks in part to obtaining one of the four retail licenses in Manitoba.

During the call, Gertner suggested the opening of the retail market will allow Hiku to reach a blended retail price per gram of C$16 for cannabis. Gertner added he believes the relationships made with the consumer and the brands on day one of the legal recreational sales will last for the entire life of those customers.

Investor takeaway

The share price for WeedMD soared up since the announcement. In Friday trading the company’s stock saw a 3.45-percent increase, reaching a price of C$2.05 per share.

Hiku, on the other hand, decreased in value 1.19 percent on Friday. However, since the announcement was made on Thursday, and Hiku’s stock was taken out of a hold by the regulators, it has increased in value by 3.05 percent. The stock is currently priced at C$1.66.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: WeedMD and Hiku Brands are clients of the Investing News Network. This article is not paid-for content.