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Jul 17, 2018

Aphria CEO: Latin America deals 'first domino' to better bottom line

Aphria expanding to South America and the Caribbean in $193M deal

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Aphria’s CEO says the company’s expansion into Latin America is the first domino towards a better bottom line.

The company (APH.TO) announced on Tuesday that it acquired Scythian Biosciences Inc. (SCYB.V) for $193 million in stock, expanding its presence in Colombia, Argentina and Jamaica, with a potential license also to be had in Brazil.

The acquisition should make the company EBITDA-positive by the end of 2019, according to chief executive Vic Neufeld.

“We’ve got two months for closing, I think [it’s] sometime in mid-September, between now and then we’re going to put a lot of dominos in place, ready to pull [capital] expenditure,” he said. “So, the building of phase one of a three-phase program in Colombia is a good example, oil extraction-inclusive.”

“We therefore, then, need the genetics to come forward, the harvest. So, we figure by the end of 2019 at the latest, we’ll be incurring revenue-positive, but also EBITDA-positive.”

The deal, which comes shortly after rivals Canopy Growth announced its entry into the Colombian market, came together over the last year, according to Neufeld. He says Aphria took a stake of “about 10 per cent” in the company in 2017 that briefly included two board seats for Aphria representatives.

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“When Scythian was incorporated, they looked to Aphria as the horse to ride in certain countries where they were the miner, so to speak, the exploration of countries where we weren’t involved at that time,” he said.

Neufeld says dealing directly with the Argentinian and Colombian governments will help mitigate any potential political risk from operating in Latin America.

“The Ministry of Justice, the Ministry of Health, the Ministry of Agriculture of these countries are very determined to bring [in] medical cannabis, high [cannabinoid] - in our case it’s the Rideau oil that serves thousands and thousands of Canadians right now – in terms of an import,” he said. “And we figure this is going to be about two years’ worth of transition of importing oils out of Canada until we get our in-country cultivation in processing.”

Neufeld said that the personnel attached to the acquisition will ultimately ease the stress of delivering on new frontiers for the company.

“The people, the skill, the leadership that is part of this acquisition is really second-to-none, and that was very important to us,” he said.

“You just need to be committed and be forthright and with clarity, and making sure what you’re saying you’ll deliver, you better deliver. If you don’t, the exit door is right around the corner.”