More consolidation in the cannabis sector.

Hexo Corp. (TSX:HEXO) has announced that it is buying rival cannabis producer Zenabis Global Inc. (TSX:ZENA) in a $235-million all-stock deal that will make Ottawa-based Hexo one of the largest Canadian marijuana companies by annual sales.

The deal will give Hexo a significant boost in cultivation capacity, adding 111,000 kilograms of cannabis production to its operations, while securing a footprint in the European medical cannabis market.

It is also 2021’s first major merger and acquisition in the cannabis sector, coming two months after Aphria Inc. (TSX:APHA) and Tilray Inc. (NASDAQ:TLRY) announced plans to merge in a $4-billion deal that will create the world’s biggest cannabis company.

Analysts expect more consolidation to take place in the Canadian cannabis sector this year as struggling companies are snapped up to stem mounting losses.

Hexo said in a written statement that the deal to buy Zenabis will ensure that it remains one of the lowest-cost cannabis producers in Canada. The cannabis grown at Zenabis’ indoor production facility will be earmarked for the company’s “super-premium” products.

Hexo said in its news release that it has identified about $20 million in savings within the first year of the deal closing. Zenabis shareholders will receive 0.01772 of a Hexo share in exchange for each share they own, a ratio that reflects a 19% premium to the company’s shares over a 20-day average. ?

Analysts forecast that Hexo will deliver positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in its upcoming quarter for the very first time.