Aphria (APHA.TO)(APHA) is talking up plans to buy an American household brand with no ties to cannabis. One analyst expects the company to strike a deal for a company it can pivot towards pot ahead of the presidential election in November.
Aphria was once among the most bullish Canadian licenced producers when it came to investing stateside. The Leamington, Ont.-based company turned its back on U.S. pot assets after agreeing to sell its stake in Liberty Health Sciences (LHS.CN)(LHSIF) in 2018. Its exit followed a warning from the owners of the Toronto Stock Exchange that companies directly invested in U.S. cannabis could face delisting from Canada’s two main exchanges, since the drug remains illegal under U.S. federal law.
Speaking last week at the Canaccord Genuity Global Growth Conference, chief financial officer Carl Merton spelled out how Aphria could return to the U.S. The plan calls for buying an established American consumer packaged goods firm totally unrelated to cannabis and CBD.
Merton said the business would need to be already profitable, have an established brand, and strong distribution.
“Anything that you would buy that has any level of cannabis in it, it’s going to cost you a premium. That’s just extra expense to your shareholders,” he said via video call.
“So you buy this business that doesn’t impact your primary business . . . other than positively. You slowly, slowly begin like a two year period, build out its cannabis capabilities while you are waiting for the rules to change. It’s very similar to the strategy we used in Germany with CC Pharma.”
Aphria completed its acquisition of CC Pharma in January 2019. The German pharmaceutical importer and distributor to thousands pharmacies extended Aphria’s reach in highly sought after European medical cannabis markets. The company said distribution through CC Pharma spurred strong medical cannabis growth in its latest quarter, generating more than $99 million in net revenue.
Aphria paid €18.92 million in cash to the former shareholders of CC Pharma, plus a performance-based earn-out multiple of up to €23.5 million.
“We bought an asset that wasn’t cannabis, didn’t pay a cannabis premium, and have built it now to leverage it for cannabis,” Merton said. “That’s where our focus has been, and it’s still there.”
Nikolaas Faes, an analyst with Bryan, Garnier & Co., expects Aphria will pull the trigger on a U.S. acquisition ahead of the Nov. 3 presidential election.
He said a Democratic win would set off an expansion cycle for U.S. multi-state operators that may also look to buy complementary non-cannabis businesses. It could also embolden other Canadian licenced producers who have shied away from U.S. assets due to political uncertainty. A win by the Republicans is less favourable for cannabis, he said, but it would show a clearer policy trajectory than the sector has today.
“Ideally it would happen now,” Faes told Yahoo Finance Canada of a U.S. acquisition by Aphria. He expects the company will attempt to limit risk by betting on multiple brands, rather than buying a single consumer goods company. Aphria did not respond to questions about the timing and focus of a deal.