Aphria medical brands to gain exposure to over
300 million people, roughly 9 times the size of Canada
LEAMINGTON, ON, July 17, 2018 /CNW/ - Aphria Inc.
("Aphria" or the "Company") (TSX: APH and
US OTC: APHQF) is proud to announce the Company's planned
expansion into Latin America and
the Caribbean with the proposed
acquisition of industry-leading companies in Colombia, Argentina, Jamaica and a right of first offer and refusal
in respect of Brazil through a
definitive share purchase agreement (the "Agreement") with
Scythian Biosciences Inc. ("Scythian"). Aphria will acquire
100% of the issued and outstanding common shares of LATAM Holdings
Inc. ("LATAM Holdings"), a direct, wholly-owned subsidiary
of Scythian (collectively, the "Transaction").
Highlights of the Transaction include:
- Solidifies Aphria's leadership position in the global cannabis
industry
- Provides Aphria with world class assets in the most advanced
regulatory jurisdictions across LATAM and Caribbean markets, from which it can further
grow and expand its international operations
- Strengthens Aphria's leading international management team with
the addition of proven local LATAM and Caribbean executives
- Establishes Aphria's presence in the most advanced strategic
market in South America,
Colombia
- Gains first mover advantage in Argentina for eventual in country
cultivation
- Acquires market leadership in Jamaica with the only producing Tier 3
cultivator license in the country
- Yields strategic rights to potentially expand into Brazil, the largest population in South America
- Delivers accretive cash flow beginning in calendar 2019
Colombia – Strategic Launch
Pad into South America
Colcanna S.A.S. ("Colcanna" or the "Colombian
Company"), will be the first company in the Coffee Zone of
Colombia with cultivation and
manufacturing licenses for the production of medicinal extracts of
cannabis, a research license and a license for the production and
extraction of cannabis, including cannabis oil, for domestic use
and for export. It is in the advanced licensing stages for a THC
license.
Unlike the former Guerilla territory where other global cannabis
companies have focused their investments, the Coffee Zone has
always been a land of peace, high productivity and progress.
Colcanna sits on 34 acres of highly fertile, predominately flat
land, which is essential for the optimal cultivation of cannabis.
As a result, greenhouses will occupy more than 20 acres of the
property and, with 6 harvests per year and two natural sources of
water for irrigation, Colcanna is expected to achieve an initial
annualized production of 30,000 kg, growing to 50,000 kgs but with
access to the country's micro-scale growers, suitable for supplying
the country and the region with high-quality medical cannabis.
Argentina – First Mover
Advantage
ABP, S.A. ("ABP" or the "Argentinean Company") is
an established and successful pharmaceutical import and
distribution company that holds a series of licenses, including for
the import of CBD oil, notably the first company in Argentina to have received this license.
The Argentinean Company operates a pharmaceutical distribution
warehouse and retail pharmacy and distributes to an extensive
network of pharmacies, distributors, government clinics and
hospitals throughout Argentina.
ABP also holds agreements with the Top 20 health insurance
companies, a strategic advantage in reaching patients accessing
Argentina's free public healthcare
system.
ABP is at the forefront of in-country medical cannabis research
and clinical trials with two significant Medical Cannabis
Cooperative Agreements. The Argentinean Company has partnered with
Hospital Garrahan, a leading pediatric hospital in Buenos Aires, for a clinical study on the
treatment of refractory epilepsy in children, and with Universidad
Nacional De La Plata to support advances in medical cannabis
research and education.
Jamaica – Only Producing
Commercial Tier 3 License
Marigold Projects Jamaica Limited ("Marigold" or the
"Jamaican Company") has been granted several key licenses by
the Jamaican Cannabis Licensing Authority, including:
- A Tier 3 license to cultivate more than five acres of land with
cannabis for medical, scientific and therapeutic purposes. This
license is the highest level of license available in Jamaica, and currently only one other company
has been approved for a Tier 3 license;
- A conditional Tier 2 license to process cannabis for medical,
scientific and therapeutic purposes, including the manufacturing of
cannabis-based products, in a space of over 200 square meters;
- A conditional herb house retail license to sell cannabis
products for medical, scientific and therapeutic purposes, with a
space for immediate consumption by consumers, including
tourists;
- A conditional therapeutic retail license to provide therapeutic
or spa services utilizing cannabis products; and
- A conditional R&D license.
Lloyd Tomlinson will continue as
Marigold's Managing Director and will be appointed Director,
Jamaica Operations at Aphria International. Mr. Tomlinson, a
Jamaican native, has more than 20 years' experience in the
pharmaceutical industry and as the CEO of Blue Manhoe Estate he
became the third-generation of his family to run the family's
coffee business. In 2014, Mr. Tomlinson made history when he
launched Timeless Herbal Care, Jamaica's first medical cannabis company.
Brazil – Strategic Option
for Major Market
The Company also remains focused on identifying the most
attractive emerging opportunities through the region, including in
Brazil where, as a result of the
Transaction, the Company will receive a right of first offer and
refusal (collectively the "Rights") in respect of a majority
interest, upon the receipt of a license, in the entity receiving
the license. With a population over 200 million and a comprehensive
National Healthcare System, Brazil
is poised to become an important market for medical cannabis, and
Aphria's regional and corporate leadership remain connected to the
rapidly evolving opportunity in Brazil.
Impactful Leadership for LATAM and the Caribbean
Scythian's highly experienced and well-regarded LATAM and
Caribbean management team will
join Aphria International as a critical component to this
Transaction. Collectively, they have significantly advanced the
opportunities at each of the companies acquired in this
Transaction, while laying the groundwork for future growth in many
countries throughout the region. They have built deep rosters of
relationships throughout the region and, in particular, remain
closely connected to governmental and regulatory agencies that are
leading the rapid evolution of medical cannabis in LATAM.
The team will be led by Gabriel
Meneses, who will be appointed Vice President, LATAM and
Caribbean at Aphria International.
Mr. Meneses will bring more than 14 years of extensive
international leadership experience to Aphria International, where
he will oversee the development of new market opportunities in
Latin America while leading other
initiatives that further stimulate the Company's growth in the
regions' markets. He previously worked for Apple Inc., where he led
the launch of Apple's first Commercial & Enterprise sales
Organizations in Latin America and
the Caribbean.
Quotes from Leadership
"Aphria is proud with this initiative to create a true leader in
medical cannabis across LATAM and extend our leadership in the
global industry," said Vic Neufeld,
Chief Executive Officer at Aphria. "We have spent a considerable
amount of time and resources evaluating opportunities in
Latin America and the Caribbean and we are confident in the
long-term strategic opportunity and the value it will bring to our
shareholders. The Transaction, once completed, will firmly place
Aphria at the center of the medical cannabis industry in the
region, and will provide the strong foundation, relationships and
infrastructure to capture significant future growth as more LATAM
and Caribbean markets evolve. We
truly have the best international team in the business, and we are
continuing to bring our industry-leading expertise, experience and
know-how to strategic international markets."
Transaction Details
Aphria will acquire all of the issued and outstanding common
shares (on a fully-diluted basis) of LATAM Holdings, a direct,
wholly-owned subsidiary of Scythian with licenses and other rights
and assets held through various subsidiaries in Argentina, Colombia and Jamaica, together with the Rights in
Brazil, for aggregate transaction
consideration of $193 million, plus
by Aphria assuming $1 million in
existing debt, with the remainder of the Transaction consideration
in the form of common shares of Aphria at a deemed share price of
$12.31, being the volume weighted
average price of the Aphria shares as traded on the facilities of
the TSX for the 20 trading days immediately prior to the date of
the Agreement. Aphria expects to issue to Scythian 15,678,310
Aphria shares in connection with the Transaction, representing
approximately 6.3% of the currently issued and outstanding shares
of Aphria, calculated on a non-diluted basis.
Aphria will acquire the following entities through LATAM
Holdings:
- 90% of Colcanna, a Colombian medical cannabis producer,
currently holding a CBD cultivation license from the Ministry of
Justice and holding a license for processing, extraction,
production and research for the local market and export for the
international market of cannabis derivatives, from the Ministry of
Health. Colcanna expects to receive its THC license from the
Ministry of Justice within the next month;
- 100% of ABP, an Argentinean pharmaceutical import and
distribution company, currently licensed for the importation of CBD
oil for the purposes of research and development;
- 100% of Marigold Acquisitions Inc., a BC incorporated entity,
which owns 100% of Hampstead Holdings Ltd., a Bermuda incorporated entity, which owns 49% of
Marigold Projects Jamaica Limited, which has received a license to
cultivate and conditional licenses to process, sell and provide
therapeutic or spa services using cannabis products; and,
- The Rights to purchase 50.1% of a Brazilian incorporated
entity, which Scythian is currently seeking to acquire, which is
expected to hold a medical cannabis cultivation, processing and
distribution license in Brazil,
upon receipt of a license, for $24 million
USD, and an additional right of first refusal to acquire an
additional 20-39% of the same entity at fair market value at the
time.
The Transaction will proceed by way of a share purchase of LATAM
Holdings by Aphria and is subject to a "majority of the minority"
approval requirement by Scythian shareholders (excluding Aphria and
its affiliates), receipt of required regulatory and stock exchange
approvals, and other customary conditions of closing. Aphria has
secured irrevocable hard lock-ups (the "Lock-Ups") from
approximately 40% of the shareholders of Scythian to vote in favour
of the Transaction, and also holds an approximate 9% interest in
Scythian, together with 672,195 outstanding warrants of
Scythian, representing an additional 4% interest of Scythian
calculated on a fully diluted basis. Collectively, the shares
subject to these Lock-Ups represent, together with the Scythian
shares already owned by Aphria, approximately 50% of the currently
outstanding Scythian shares. Insiders of Aphria, including Mr.
Neufeld, Mr. Cacciavillani, Mr. Cervini and Ms. Persofsky,
currently hold an aggregate of 20,496 shares and 215,887 warrants
of Scythian representing approximately 2.1% of Scythian on a fully
diluted basis, which warrants have an exercise price of
$5.50 per Scythian share and which
currently exceeds the closing price of Scythian as of the date of
the Agreement. Mr. Neufeld and Ms. Persofsky, current directors of
Aphria, previously stepped down as directors from the Board of
Directors of Scythian in the previous quarter. As part of
leaving the Board of Directors of Scythian, Mr. Neufeld forfeited
160,000 options at an exercise price of $4.66, 140,000 options at an exercise price of
$5.28 and 200,000 DSUs. In
respect of the Transaction, certain members of the Board of
Directors of Aphria (Mr. Neufeld, Mr. Cacciavillani, Mr. Cervini
and Ms. Persofsky) holding shares or warrants in Scythian disclosed
such interests to the Board of Directors of Aphria and all recused
themselves from the meeting of directors during which the
Transaction was discussed and from voting on the resolution
approving the Transaction.
The Board of Directors of Aphria has received a fairness opinion
from Cormark Securities that, as of July 16,
2018, and subject to the assumptions, limitations and
qualifications on which such opinions are based, the consideration
to be offered by Aphria in respect of the Transaction is fair, from
a financial point of view, to Aphria. The eligible directors
of Aphria, after receiving legal and financial advice, have
unanimously approved the Transaction.
The Agreement between Scythian and Aphria provides for, among
other things, a non-solicitation covenant on the part of Scythian,
as well as a "fiduciary out" provision that entitles Scythian to
consider and accept a superior proposal, and a right in favour of
Aphria to match any superior proposal. If the Agreement is
terminated in certain circumstances, including if Scythian enters
into a definitive agreement with respect to a superior proposal,
Aphria is entitled to a break-fee payment of $5.8 million. The Transaction is currently
expected to close on or prior to September
30, 2018.
Further information regarding the Transaction will be included
in Scythian's management information circular to be mailed to
Scythian shareholders in advance of the special meeting and in
Scythian's material change report in respect of the announcement of
the Transaction, each of which will be filed with the Canadian
securities regulators and will be available at www.sedar.com.
Financial and Legal Advisors
Stikeman Elliott LLP acted as legal counsel to Aphria. Cormark
Securities Inc. is providing a fairness opinion and acted as
financial advisor to the Board of Directors of Aphria.
Gowling WLG (Canada) LLP acted
as legal counsel to Scythian. Haywood Securities Inc. provided a
fairness opinion and a valuation under Multilateral Instrument
61-101 - Protection of Minority Security Holders in Special
Transactions and Clarus Securities Inc. acted as financial
advisor to the Board of Directors of Scythian and provided a
fairness opinion.
We Have A Good Thing Growing
About Aphria
Aphria is a leading global cannabis company driven by an
unrelenting commitment to our people, product quality and
innovation. Headquartered in Leamington,
Ontario – the greenhouse capital of Canada – Aphria has been setting the standard
for the low-cost production of safe, clean and pure
pharmaceutical-grade cannabis at scale, grown in the most natural
conditions possible. Focusing on untapped opportunities and backed
by the latest technologies, Aphria is committed to bringing
breakthrough innovation to the global cannabis market. The
Company's portfolio of brands is grounded in expertly-researched
consumer insights designed to meet the needs of every consumer
segment. Rooted in our founders' multi-generational expertise in
commercial agriculture, Aphria drives sustainable long-term
shareholder value through a diversified approach to innovation,
strategic partnerships and global expansion, with a presence in
more than 10 countries across 5 continents.
For more information, visit: aphria.ca
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 internal expectations,
approval of conditional licenses within LATAM Holdings, closing of
the Transaction, timing of the Transaction, cash flow expectations
for LATAM Holdings, estimates on the number of users of medical
cannabis in South America and the
Caribbean, Colombia being the most strategic country in
South America, expectations with
respect to gaining cultivation activities in Argentina, estimated margins,
expectations with respect to actual production volumes,
expectations for future growing capacity and costs, the completion
of any capital project or expansions, and expectations with respect
to future production costs. Forward-looking statements 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; 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.
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.
SOURCE Aphria Inc.