Aphria shares climb after announcing US$300M deal for U.S. brewer
Canadian pot giant Aphria Inc. is maring its first trip south of the border after announcing plans to buy craft brewery SW Brewing Company LLC for approximately US$300 million.
The deal will mark the Leamington, Ont.-based cannabis producer's initial foray into the U.S., a country whose pot industry it cannot operate in due to restrictions imposed by U.S. and Canadian stock exchange regulators.
SW Brewing, better known as SweetWater Brewing Co., distributes its beer to 27 states in the U.S. and includes such brands as 420 Extra Pale Ale. "420" is a common term used in cannabis culture to signal the preferential time to consume the drug.
Aphria said the deal will position itself as a global cannabis-focused diversified business that includes non-marijuana operations in the U.S. and Germany, while maintaining a market leadership position in Canada's recreational pot sector. It also marks one of the first times a Canadian cannabis company has moved into the U.S. without pursuing a strategy in the crowded CBD product market.
The company said the acquisition will be accretive to its earnings before interest, taxes, depreciation, and amortization, while the brewer will represent about 15 per cent of its revenue once the deal closes by the end of the year.
Aphria said it will pay US$250 million in cash and an additional US$50 million in stock. Under the terms of the deal, SweetWater is also eligible to receive up to US$66 million of additional cash if certain financial milestones are met over the next fiscal year.
SweetWater reported revenue of US$66.6 million in 2019, while booking a profit of US$22.7 million, Aphria said in a release.
"Our strong balance sheet and access to capital have enabled us to enter the U.S. through this strategic and accretive acquisition. We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise," said Irwin Simon, Aphria's chief executive officer, in a statement.
During a conference call with analysts late Wednesday, Simon said the deal will open the door for Aphria's various brands to be introduced to the U.S. market. He added that he could work with the SweetWater team to develop THC beverages for the Canadian recreational cannabis market.