Aphria Inc. (TSX: APHA and NYSE: APHA) has the largest cash balance in the cannabis industry not diluted by a strategic partner, its interim CEO said after his company announced it had secured a loan from a major Canadian bank.
Subsidiary Aphria Diamond has locked-down a committed senior secured credit facility of $80 million with an interest rate of roughly five per cent, according to a press release issued Monday.
Aphria has a 51 per cent stake in the subsidiary, a partnership with veteran veggie growers Double Diamond at a 1.3 million square-foot greenhouse in Leamington, Ont.
In a world that requires the spending of money for the making of money, many cannabis companies have struggled to secure financing after the industry bubble burst following the end of spring 2019. Even some larger companies that appeared to be flush with capital turned to rounds of unsecured debt financing to drum up extra cash.
Interim CEO Irwin D. Simon said his company was pleased to have a loan to repatriate a portion of its investment in Aphria Diamond that will be strategically spent by Aphria.
“This loan strengthens our balance sheet without being dilutive, and positions Aphria Diamond for success as we expand into new categories and growth opportunities in cannabis to enhance value for shareholders long term,” he said.
The credit facility is secured by Aphria Diamond’s assets and Aphria’s balance sheet, the release said.
Pricing for Aphria’s credit facility is based on a set margin over the bank’s Canadian prime rate or bankers’ acceptance and a pricing grid linked to certain financial ratios. The company said it expects the rate at the outset to be in the low-to-high five per cent per annum range. The credit facility has a three-year term and contains customary financial and restrictive covenants.
The offering of a modest five per cent rate on the credit facility could indicate the bank’s favourable assessment of Aphria’s balance sheet.
Since securing its Health Canada license Nov. 1, 2019, Aphria Diamond is quickly coming on scale, the company said.
— aphria inc. (@aphriainc) November 4, 2019
“Aphria Diamond will be 70 per cent planted by mid-week, with 350,000 young seedlings planted. With the level of automation and scale of the facility, the company anticipates Aphria Diamond to have one of the lowest cost structures in the industry,” the release stated.
“Aphria expects the dried flower production from the first harvest to be sold to provincial control boards sometime in March 2020.”