With Broken Coast, Aphria becomes the
largest Canadian EBITDA generating Licensed
Producer
Creates leading cross-Canada platform, with scaled low cost
greenhouse operations in Ontario
and award-winning premium indoor BC production
LEAMINGTON, ON and LADYSMITH, BC, Jan. 15, 2018 /CNW/ -
Aphria Inc. ("Aphria" or the "Company") (TSX: APH
and US OTC: APHQF) is pleased to announce that it has entered
into a binding letter agreement to acquire 100% of the issued and
outstanding share capital of Broken Coast Cannabis Inc. ("Broken
Coast"), a leading premium cannabis producer located in
British Columbia (the
"Transaction"). Broken Coast adds award-winning premium
production and a proven West Coast brand to Aphria's asset
portfolio, affirming the Company's market position ahead of a legal
adult recreational use market in Canada. The Transaction is
expected to add incremental annual production of 10,500 kgs, a
portion of which is market ready today, elevating Aphria's forecast
annual production to 230,000 kgs while also providing Aphria with
geographic diversification, a cross-Canada distribution platform, and access to
over 40,000 medical patients. In combination with its low cost and
scaled greenhouse platform in Leamington,
Ontario, the addition of Broken Coast establishes Aphria as
a Canadian leader in premium indoor cannabis production.
Highlights of the Transaction
- Industry-leading market position and geographic
diversification: The pro-forma company will be the largest LP
by Adjusted EBITDA1 and second largest by revenue in
calendar year 20182, with a combined production
potential of more than 110,000 kgs per year at an average cost of
less than $2.00 per gram from assets
in Ontario and British Columbia.
- Established brand and highly-regarded product quality
solidifies recreational positioning and strategy: The
Transaction represents Aphria's second major investment into
consumer- and brand-focused assets, in advance of the legalization
of adult recreational use of cannabis expected in 2018. The
addition of Broken Coast's award-winning BC brand and reputation
for a premium product further diversifies and augments Aphria's
product portfolio.
- Extensive genetic library and differentiated product
offerings: Broken Coast has an extensive genetic library with
over 1,000 seeds that can be commercialized. Leveraging Broken
Coast's genetics will enable the pro-forma company to bring unique,
differentiated cannabis products to market.
- Combined production practices and proprietary technological
know-how: Both teams anticipate improved operational
performance through the implementation and sharing of production
practices and know-how. Broken Coast expects to leverage Aphria's
years of scaling and supply chain management experience for its
indoor production, while Aphria is set to benefit from Broken
Coast's significant premium cannabis cultivation expertise.
- Accretive economics on both trailing and forward
metrics: Broken Coast has had positive Adjusted EBITDA since
2015, and 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.
- Complementary low-cost cultivation: The Transaction
supports Aphria's low-cost, high-margin strategy. Broken Coast has
achieved a low cost of production that is highly favourable
compared to indoor peers.
- Combined company synergies: The Company expects to
realize improved supply chain management efficiencies, leveraging
Aphria's cost-effective supply chain network and now a West Coast
distribution platform; cross-selling and up-selling to customers
through a broader product portfolio; integrated operations and
controls; and implementation of best practices.
- Highly experienced management team with West Coast
foothold: Broken Coast's management and cultivation teams have
a proven ability to scale premium indoor cannabis production and
drive production yields, and bring a strong foothold in the West
Coast to Aphria, which is expected to be one of Canada's largest and most diverse recreational
cannabis markets.
"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. We look forward to learning from each
other and bringing more Broken Coast cannabis to current medical
patients and future adult recreational use consumers in
Canada."
"Broken Coast is committed to providing a premium and affordable
product to its patient base while staying true to BC's iconic
cannabis brand and culture," said Roberto
Bresciani, Director and Co-Founder of Broken Coast. "Joining
the Aphria team will open doors to keep innovating with our unique
production process and cannabis genetics. While we are joining a
talented large-scale greenhouse operator, Broken Coast will retain
a high level of independence and our existing management and
production teams will continue to drive our corporate strategy and
produce incredible cannabis products."
Broken Coast facility and approval of phase IV
expansion
Broken Coast operates a fully licensed, purpose-built, indoor
cannabis production facility on Vancouver Island. Currently 26,000
sq. ft., the facility is undergoing an expansion that is
near-complete and will bring total square footage to 44,000 sq.
ft., capable of producing a cumulative 4,500 kgs per year. The
facility sits on a 4.5-acre parcel of owned land that has the
necessary surrounding infrastructure to support further expansions,
specifically Broken Coast's planned Phase IV expansion to bring
total capacity to 10,500 kgs per year.
As part of the Transaction, Aphria approved the immediate
commencement of Broken Coast's Phase IV expansion
("Expansion"). The 60,000 sq. ft. Expansion is expected to
cost under $20 million and will
increase the facility's annual capacity from 4,500 kgs per year to
10,500 kgs per year. The Expansion is anticipated to be
completed by late summer 2018, with first product sale occurring in
early 2019.
Founded in 2013, Broken Coast was the fourth (4th)
licensed producer in British
Columbia and twelfth (12th) licensed producer in
Canada. Utilizing a proprietary
grow method that is supported by a highly automated and
standardized growing system, Broken Coast's name and brand has
become synonymous with premium cannabis. The company has amassed a
loyal patient base of over 10,000 registered patients, of which
over 50% are domiciled in Western
Canada, by offering premium quality cannabis at an
affordable price.
Transaction summary
The total Transaction value is approximately $230 million, to be paid with up to $10 million in cash and the remainder in Aphria
shares, and is subject to customary closing adjustments. Shares
issued to Broken Coast shareholders will be issued at a deemed
price of $ 15.09 representing the
20-day VWAP of Aphria at market close on the business day
immediately prior to the signing of the parties initial non-binding
letter of intent. 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.
The deal remains subject to certain other customary closing
conditions for the benefit of Aphria, including the conditional
approval of the TSX, applicable regulatory approvals and the
satisfaction of certain customary closing conditions. Aphria does
not require a shareholder approval for the Transaction.
The Transaction is anticipated to close by January 31, 2018.
Financial and legal advisors
Stoic Advisory Inc. is acting as financial advisor and Stikeman
Elliott LLP is acting as legal advisor to Aphria.
Canaccord Genuity Corp. is acting as financial advisor and
Velletta & Company is acting as legal counsel to Broken
Coast.
We Have a Good Thing Growing.
About Aphria
Aphria Inc., one of Canada's
lowest cost producers, produces, supplies and sells medical
cannabis. Located in Leamington,
Ontario, the greenhouse capital of Canada. Aphria is truly powered by sunlight,
allowing for the most natural growing conditions available. Aphria
is committed to providing pharma-grade medical cannabis, superior
patient care while balancing patient economics and returns to
shareholders.
About Broken Coast
Broken Coast Cannabis, a medical cannabis producer based in
British Columbia, is proud to be
Canadian owned and operated. Broken Coast believes that
quality results from adhering to strict procedural protocol
and environmental control. Through an extensive system
of operating procedures, they provide the highest levels
of purity, quality, and customer satisfaction. Premium cannabis is
grown hydroponically in a custom-built facility, in
small batches in single-strain rooms, and harvested on
a rotational cycle to ensure they have a steady supply of
fresh product in stock.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: Certain
information in this news release constitutes forward-looking
statements under applicable securities laws. Any statements that
are contained in this news release that are not statements of
historical fact may be deemed to be forward-looking statements.
Forward looking statements are often identified by terms such as
"may", "should", "anticipate", "expect", "potential", "believe",
"intend" or the negative of these terms and similar expressions.
Forward-looking statements in this news release include, but are
not limited to, statements with respect to accretive earnings,
anticipated revenue and costs synergies associated with the
acquisition of Broken Coast, statements with respect to internal
expectations, estimated margins, expectations for future growing
capacity and costs, the completion of any capital project or
expansions, the timing for the completion of the Transaction and
expectations with respect to future production costs. In
particular, there can be no assurance that the Transaction will be
completed. Forward looking statements are based on certain
assumptions regarding Broken Coast, including expected growth,
results of operations, performance, industry trends and growth
opportunities. While the Company considers these assumptions to be
reasonable, based on information currently available, they may
prove to be incorrect. Readers are cautioned not to place undue
reliance on forward-looking statements. Forward-looking statements
also necessarily involve known and unknown risks, including,
without limitation, risks associated with general economic
conditions; adverse industry events; marketing costs; loss of
markets; future legislative and regulatory developments involving
medical marijuana; the possibility that the Company be unable to
successfully integrate Broken Coast as described herein; inability
to access sufficient capital from internal and external sources,
and/or inability to access sufficient capital on favourable terms;
the medical marijuana industry in Canada generally, income tax and regulatory
matters; the ability of Aphria to implement its business
strategies; competition; crop failure; currency and interest rate
fluctuations and other risks. Any forward-looking statements or
facts (including financial information) related to Broken Coast
discussed or disclosed herein are derived from information obtained
directly from Broken Coast and publicly available sources and has
not been independently verified by the Company.
Readers are cautioned that the foregoing list is not exhaustive.
Readers are further cautioned not to place undue reliance on
forward-looking statements as there can be no assurance that the
plans, intentions or expectations upon which they are placed will
occur. Such information, although considered reasonable by
management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those
anticipated.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement.
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1
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- Non-GAAP measure
defined in the Company's Management Discussion &
Analysis.
|
2
|
- Per industry
analysts estimates and internal forecasts
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SOURCE Aphria Inc.