Aphria Buys Broken Coast Cannabis In Deal Valued At C$230 Million

It’s merger Monday in the cannabis industry as Aphria steps up to make a big deal with Broken Coast Cannabis.

Aphria Inc. (APHQF)  announced that it entered into a binding letter agreement to acquire 100% of Broken Coast Cannabis Inc., a premium cannabis producer located in British Columbia. The deal is expected to add incremental annual production of 10,500 kgs, some of that cannabis is market ready today, quickly boosting Aphria’s forecast annual production to 230,000 kgs. The transaction also gives Aphria more geographic diversification, a cross-Canada distribution platform, and access to over 40,000 medical patients. 

The total value of the deal is approximately C$230 million, to be paid with up to C$10 million in cash and the remainder in Aphria shares. Shares issued to Broken Coast shareholders will be issued at a price of C$15.09 and the deal is expected to close January 31. Each of the three co-founders of Broken Coast, who cumulatively hold over 80% of the outstanding capital, will remain with the pro-forma company.

This is Aphria’s second major investment into consumer- and brand-focused assets, in advance of the legalization of adult-use cannabis expected in 2018. In a company statement, Aphria said that Broken Coast has had positive Adjusted EBITDA since 2015 and that its lean operations are highly complementary to Aphria. In combination with Aphria’s track record, the combined entity is expected to be amongst the most profitable and sustainable producers in the country.

“Adding one of Canada’s most sought-after premium brands represents a major triumph for Aphria and our shareholders and firmly establishes our position as a Canadian leader in premium indoor cannabis production,” said Vic Neufeld, Chief Executive Officer of Aphria. “Broken Coast has proven that you can grow premium quality cannabis, charge a reasonable price and earn a profit all at the same time. Our two companies are closely aligned, particularly as it relates to our relentless focus on production costs and profitability.”

Strategic Investment in Althea

Aphria Inc. also announced that it signed a supply agreement with Australian-based Althea Company Pty Ltd. and invested C$2.5 million in Althea in exchange for 25% shareholdings in the Company. The investment increases Aphria’s presence in the emerging Australian cannabis market. This is the second supply agreement Aphria has signed in Australia.

According to the company statement, Aphria will provide Althea with packaged co-branded cannabis oil and dried flower products for the Australian medical cannabis market. Althea has already received import permits from the Australian Government’s Office of Drug Control (ODC) and Aphria is expected to export the first shipment this month, subject to regulatory approvals by Health Canada.

Aphria stock was lately trading at $14.45 on the OTC Marketplace, down from its 52-week high of $19.86, but way above its 52-week low of $3.39.