Aphria and Nuuvera Combine in an $826 Million Merger

Cannabis company Aphria Inc. (TSX:APH) on Monday entered into an agreement to acquire rival Nuuvera Inc. (TSXV:NUU) for CAD$826 million in cash and stock. The move bolsters Aphria’s plans to expand globally, bolstered by Canada’s proposed legalization of recreational marijuana by mid-2018.

The deal is indicative of a growing wave of consolidation in Canada’s marijuana industry as companies attempt to gain market share before sales become legal. Just last week Aurora Cannabis Inc. (TSX:ACB) and CanniMed Therapeutics Inc. (TSX:CMED) agreed to a CAD$1.1 billion merger.

The deal combines Nuuvera’s expertise in cannabis processing and extraction with Aphria’s low-cost cultivation capabilities.

Medical marijuana is legal in Canada, and the industry expects to get a boost from exports as many other countries adopt legalization. The combined Canadian market for the medical and recreational marijuana is predicted to reach about $8 billion in sales by 2021, Canadian companies are seeking to grow in markets where there is even higher potential.

International Expansion

“This positions us to grow internationally and realigns the potential of these emerging cannabis markets,” Aphria Chief Executive Officer Vic Neufeld said on Monday.

Aphria receives access to Nuuvera’s international network to create a significant global presence. Nuuvera is working with partners in Germany, Spain, the United Kingdom, Uruguay, Israel, and Italy and is exploring prospects in other countries to develop commercial production and distribution of medical cannabis. Aphria has joint venture agreements in Australia.

Nuuvera recently acquired one of only seven companies in Italy with a license to import medical cannabis. Italy is forecasted to be a CAD 9 billion market, which is larger than Canada’s medical and recreational markets combined.  

"The combination of Aphria and Nuuvera creates a true global leader in medical cannabis with excellent potential for growth and value creation," said Vic Neufeld, CEO of Aphria. "This transaction, which builds on a long-standing relationship between the two companies, brings together our top tier ability to grow high-quality cannabis at a low-cost with Nuuvera's expansive international network, expertise in processing, and access to industry leading technology. I am thrilled to welcome Nuuvera to the Aphria family and I am confident they will play a significant role in our continued success."

Lorne Abony, CEO of Nuuvera, said, "The transaction provides our shareholders with significant value for their investment in Nuuvera and the opportunity to participate in the significant upside of the combined company. As part of Aphria, we will have access to every tool we need to open key international markets and execute on our growth plan as part of a stronger, well-resourced global cannabis leader."

“In one year, we hope to have 20 countries under license with some sort of commercial transaction. That is the vision,” Neufeld said.

The Money

Aphria will pay CAD 8.50 per share to Nuuvera shareholders in the of CAD 1 cash and 0.3546 shares of Aphria’s stock. Aphria expects to issue approximately 34 million new shares to fund the deal.

The transaction needs the approval of two-thirds of Nuuvera shareholders. Aphria has already secured shareholder votes for 57 percent of outstanding Nuuvera shares, including its current 6.5 percent stake in the Nuuvera. Nuuvera’s shareholders will own around 11 percent of Aphria after the deal closes.

Closing Thought

The acquisition amplifies the wave of consolidation in Canada’s cannabis sector.

Who is next?

NUU is currently trading at CAD$7.40 per share, and APH is trading at CAD$18.03 per share.

 

The author has no direct investment in APH or NUU. The author may have an indirect stake in these companies through ownership of shares in the Horizons Marijuana Life Index ETF (TSX:HMMJ)

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