HEXO acquires interest in 2M sq. ft. facility in Belleville, Ontario to create R&D and manufacturing centre of excellence
GlobeNewswireSeptember 10, 2018, 10:54 AM MDT
GATINEAU, Quebec, Sept. 10, 2018 (GLOBE NEWSWIRE) -- HEXO Corp. (“HEXO” or the “Company”) (HEXO.TO) has announced the acquisition of an interest in a 2,004,000 sq. ft. facility in Belleville, Ontario. This is the first facility of the Company to be established outside of Quebec, further delivering on its national expansion strategy and providing capacity for the manufacturing of advanced cannabis products, including cosmetics, vapes, non-alcoholic beverages and other edibles.
The centralized location, conveniently located along primary shipping routes in Ontario, presents the opportunity to process and distribute products and to fulfil commitments across Canada. The space also supports the Company’s hub and spoke model. Its scalability, flexibility and location are ideal to deliver on anticipated future joint ventures with Fortune 500 companies for cosmetics, edibles, vapes, and more, positioning it to become a centre of excellence for all of HEXO’s joint ventures. HEXO’s expansion will also lead to the creation of jobs and a rejuvenated employment sector for the area.
The building, previously used as a Sears distribution centre, will be owned in a joint venture with Olegna Holdings Inc. Initially, HEXO plans to lease up to 500,000 sq. ft. of the space from the joint venture. The proposed use of the building is conditional on the city approving the rezoning application.
“There is a skilled workforce in the Belleville area, and we look forward to capturing it,” said Sebastien St-Louis, HEXO’s co-founder and CEO. “We are investing in the region and its people with a view to achieving a sustainable national presence. For the first time, we are stepping out of our home province of Quebec and are committed to and demonstrating our commitment to serve and expand across Canada. And we are keeping future partnership and international opportunities in sight for the near future.”
The building is owned by Belleville Complex Inc., a joint venture in which HEXO will hold a 25% interest and Olegna Holdings Inc. will hold a 75% interest. In addition to its initial lease of 500,000 sq. ft. of the space under a long-term lease, HEXO will have rights of first offer and first refusal to lease the remaining space in the building. As part of the transaction, HEXO has loaned $20,000,000 to Belleville Complex to acquire the building. The loan will be repaid within 120 days from September 7, 2018, and as of October 7, 2018, will bear interest at an annual rate of 4%, which interest shall be payable monthly. The loan is secured by a first mortgage over the building. The transaction is subject to the satisfaction of certain conditions and is scheduled to close on October 12, 2018.
The transaction is considered a “related party transaction” within the meaning of Multilateral Instrument 61 - 101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”) because Mr. Vincent Chiara, a director of HEXO, holds a majority interest in Olegna Holdings Inc. HEXO is relying on applicable exemptions from the minority approval and valuation requirements of MI 61-101 on the basis that neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction exceeds 25% of HEXO’s market capitalization. The terms of the transaction have been reviewed and approved by the independent directors of the Company, and the rental rates for the facility were supported by estimates from independent appraisers.
