Shares of Hexo, Kanata, Ontario, at last check were climbing 22% to $9.07, while Vancouver-based Zenabis rose 17% to 14 cents.
The transaction was approved by the boards of both companies. Hexo estimated the combined entity may realize annual synergies of about C$20 million, or US$15.8 million, within one year of close.
Under the terms, Zenabis holders will receive 0.01772 Hexo common share for each of their shares.
Hexo said it will have access to licensed capacity to produce about 111,200 kg (245,154 pounds) of additional high-quality cannabis annually.
The company would also acquire two indoor facilities, roughly 635,000 sq. ft, and access to a 2.1 million sq. ft. greenhouse facility, totaling about 2.735 million sq. ft. of near-term cultivation space.
In addition, the transaction gives Hexo immediate access to the European medical cannabis market through Zenabis’s local partner, with an established facility in the European Union supplying pharmaceutical products to the European market.
"Hexo’s growth strategy includes expanding our global presence, and this acquisition is an important step in that direction," Sebastien St-Louis, Hexo co-founder and chief executive, said in a statement.
"Medical cannabis is really the foundation of what Aurora is all about, we had a great quarter in Canada and internationally," Aurora Cannabis CEO Miguel Martin told TheStreet.
The company recently reported a wider-than-expected loss before special items for its fiscal second quarter, but said it is in a strong financial position and expects to “progress” to positive cash flow.
Last week Tilray and U.K. peer Grow Pharma agreed to import and distribute medical-cannabis products in the U.K.
In December, Tilray and Aphria (APHA) - Get Report unveiled plans to join forces in an all-stock deal. The move will create the world’s biggest marijuana production and distribution company with an equity value of about C$4.8 billion ($3.8 billion).
Tilray reports fourth-quarter earnings Wednesday. Analysts surveyed by FactSet call for a loss of 14 cents a share on revenue of $56 million.