Aphria Inc. will acquire SweetWater Brewing Company in a US$300-million deal that could help it gain a foothold in the U.S. market.
The Leamington, Ont.-based cannabis company said Wednesday that it went after the Atlanta, Georgia craft beer company because it believes the business can be key to its expansion plans and help it access the U.S. more quickly in the event of federal legalization.
"I think there will be a time when there will be tetrahydrocannabinol (THC) drinks that will be legal in the U.S. and we want to be able to have a platform to jump onto that when this happens and this gets us there," Aphria chief executive Irwin Simon said on a call with analysts that was aptly scheduled for 4:20 p.m. local time.
Under the deal Simon struck SweetWater, its brews and its annual music festival will become a wholly-owned subsidiary of Aphria.
Sweetwater will receive $250 million in cash and about $50 million in Aphria stock at closing and be eligible to receive up to $66 million of additional cash under an earnout through the end of 2023.
SweetWater chief executive Freddy Bensch will continue running the subsidiary, but report to Simon and enter into a consulting agreement to last until the end of 2023.
The deal has been unanimously approved by Aphria's board of directors and is expected to close by the end of the year.
The Aphria and SweetWater deal comes as the cannabis edibles market has intensified in Canada.
Chocolates, gummies and teas all hit the shelves of cannabis companies at the start of the year and in the months since, have been joined by a wave of pot beverages.
Molson Coors Canada, Anheuser-Busch InBev, Tilray Inc., Aurora Cannabis Co., Canopy Growth Corp. and even actor Seth Rogen's company Houseplant have rolled out cannabis beverages.
There are opportunities to bring SweetWater drinks, including its flagship 420 line, to Canada and in general, just produce Broken Coast, Good Supply, Riff and Solei branded beverages or cannabidiol (CBD) and THC drinks, said Simon.
Cannabidiol is a cannabis compound often used to manage anxiety, stress and pain, while THC typically produces a more euphoric high.
Once such drinks are ready for sale, the company it can turn to SweetWater's network of relationships that includes about 29,000 retailers, more than 10,000 restaurants and bars and even Delta plane flights.
Sweetwater also has a 14,670 square-metre brewery, restaurant and entertainment venue and a presence in 27 U.S. states.
"If you look at the size of the beverage category and new drinks coming in for relaxation, for sleep, for anxiety, etc., there (are) 27 states and a distributor business already in place," Simon said.
"There is a tremendous amount of opportunity."
This report by The Canadian Press was first published November 4, 2020.
Companies in this story: (TSX: APHA., TSX: WEED)
Tara Deschamps, The Canadian Press
