On Thursday, Green Growth Brands Ltd (CNSX:GGB) announced that it was intending to purchase Canadian pot producer Aphria Inc (TSX:APHA)(NYSE:APHA) in a takeover attempt. The proposed deal would be an all-share transaction where Aphria investors would receive 1.5714 shares of Green Growth. Based on recent share prices, the deal is valued at around $11 per share. This is a 45% premium from the $7.57 that Aphria was trading at as of Thursday’s close.
CEO Peter Horvath of Green Growth believes the two companies will complement each other well, stating in the release that, “Together, we can unleash synergies between our teams, assets and geographies, forming a combined enterprise that will accelerate our collective growth strategies in Canada, the U. S. and overseas.”
It’s clear that Green Growth has some big ambitions for the acquisition that go beyond just North America. And with Aphria having positions in many countries, including recent expansion in South America, it likely caught the attention of the U.S. firm.
Green Growth did attempt to make a friendly deal with Aphria prior to this announcement where the company’s management would have remained intact and it would have had representation at the board of the new combined company. Alas, a deal was not reached and Green Growth became more aggressive in its pursuit of Aphria.
U.S. cannabis market is changing
News of the deal comes on the heels of the Farm Bill that was passed earlier this month which now permits cannabidiol (CBD) that is derived from hemp. It’s a major step for cannabis companies and will likely result in many more CBD products hitting store shelves.
With a form of CBD now being legal in the U.S., there’s an opportunity for U.S. and Canadian companies to work together. However, individual states can still decide to ban CBD.
This is the first big move that’s happened since the news, and it could be just the start. Companies have been hesitant to invest due to legal concerns, but attitudes may be changing now.
Aphria previously held investments in U.S. cannabis companies but ended up having to divest those holdings as the TSX put companies on notice for not being in compliance with U.S. laws and the exchange’s listing requirements.
Aphria stock struggling as of late
One reason Aphria investors might not be overly excited about this deal is that their stock has been crashing badly over the past several weeks. In three months, Aphria’s share price has dropped by 60% and it was at over $20 per share just before recreational pot sales became legal in Canada back in October. So for Aphria investors to be excited at an offer equivalent to $11 per share might be a stretch.
After all, with the company locking up a big investor recently and the recreational market now underway, the stock might be due for a big recovery in 2019. Although the offer is a big premium from its current price, it may not be an easy sell to convince investors that it is a good deal.