Tilray to pay MediPharm CA$9M package related to Hexo cannabis supply dispute

Canadian cannabis producer Tilray Brands has agreed to pay rival producer MediPharm Labs a settlement package worth 9 million Canadian dollars ($6.6 million).

The settlement is related to MediPharm’s dispute with Hexo Corp., which Tilray acquired earlier this year.

In January 2020, MediPharm filed a statement of claim in the Ontario Superior Court of Justice against Hexo, one of its long-term customers, over a supply agreement for cannabis concentrates.

The claim said Quebec-headquartered Hexo owed money to Ontario-based MediPharm for products shipped and another sum of money owed for contractually committed amounts not yet shipped.

Tilray, which has offices in Ontario and New York, closed its purchase of troubled cannabis producer Hexo in June for an aggregate purchase price of roughly $56 million (CA$74 million).

In July 2022, MediPharm was awarded a favorable summary judgment in the Ontario Court of Justice.

But Hexo appealed the summary judgment, and a hearing was scheduled for Oct. 12, 2023.

However, in connection with the settlement agreement, Hexo has agreed to abandon its appeal.

After Tilray’s acquisition of Hexo, the companies sought to resolve the dispute and establish a long-term supply relationship, according to a MediPharm statement.

Under the settlement, MediPharm will receive a total value consideration of CA$9 million, consisting of:

• CA$3 million immediate cash payment.
• CA$4.5 million in common shares of Tilray.
• CA$1 million in Tilray cannabis products, including flower and biomass.
• A supply agreement valued at CA$500,000 to provide Tilray with MediPharm products and services over four years.

MediPharm said the four-year supply agreement will allow it to establish a “positive ongoing business relationship” with a global leader in the cannabis industry.

Once completed, the deal will bolster MediPharm’s balance sheet, which had CA$14.7 million in cash as of earlier this summer.

In the statement, MediPharm’s management said it believes the deal puts the company in a strong position to continue to invest in the pharmaceutical and clinical pipelines.

The company will also “thoughtfully” consider consolidation opportunities in the industry.

“This settlement will allow us to receive $9M in value, which will dramatically strengthen our balance sheet and allow us to invest in many organic and inorganic growth opportunities,” MediPharm CEO David Pidduck.

“We are also excited to establish a long-term relationship with Tilray, a global leader in the cannabis space.

This agreement builds on MediPharm’s many customers across multiple channels, multiple geographies, B2B segments and pharma.”

Tilray’s shares trade as TLRY on the Nasdaq and Toronto Stock Exchange.

MediPharm’s shares trade as LABS on the TSX.