Aphria ties up $300m deal for SweetWater Brewing Co.

Canada’s third largest cannabis company has agreed a $300 million deal to purchase Atlanta-based brewer SweetWater.

The deal includes $250 million in cash and $50 million in stock. It has been approved by the Aphria board, and it is expected to close by the end of 2021.

Aphria has a market cap of CAD $1.9 billion ($1.45 billion) and brought in net revenue of CAD $145.7 million ($111 million) in the first quarter of fiscal 2021.

That makes it Canada’s third biggest cannabis company after Canopy Growth Corp. and Cronos Group, but it is prohibited from selling marijuana in the U.S., where cannabis remains illegal at a federal level.

SweetWater produces a range of craft beers, including 420 Extra Pale Ale, Goin' Coastal and Hop Hash, which are designed to emulate the flavours of a variety of cannabis strains.

Aphria chairman and chief executive Irwin Simon said: “Our strong balance sheet and access to capital have enabled us to enter the U.S. through this strategic and accretive acquisition. We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise.

“At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization.”

Cannabis is legal for recreational use in 15 states, plus the District of Columbia, and for medicinal purposes in another 20 states. However, it is illegal at a federal level, meaning all supply must come from within each state.

Yet firms like Aphria, Canopy and Tilray are forging strong connections with the U.S. alcoholic beverages industry, and preparing for it to eventually be legalized.

Democratic presidential nominee Joe Biden, who is now the 1/6 (-600) favourite to win the election after flipping Michigan and Wisconsin, initially opposed federal marijuana reform, but quickly changed his tune after facing internal pressure within his party.

He supports federal decriminalization and expungement of prior convictions, while he also said he would endorse states setting their own cannabis policies, but he has stopped short of pledging federal legalization.

On a combined basis, Aphria and SweetWater will have approximately CAD $650 million to CAD $675 million of annualized pro-forma net revenue and approximately CAD $65 million to CAD $70 million of annualized pro-forma adjusted EBITDA.

Freddy Bensch, SweetWater’s founder and chief executive, will remain with the company once the takeover is complete.

“We are excited by the opportunity to join a leading global cannabis company and build a successful future based on the strengths we both bring to this combination,” said Bensch.

“Our 420 brand offerings and SweetWater 420 Fest complement Aphria's cannabis business and create mutual opportunities for accelerated expansion into other cannabis- and beverage-related products in the U.S. and Canada.

“We will leverage our growing beverage offering and build an even stronger, more diversified company with a continued focus on authentic and distinctive brands using some of the freshest, most flavourful ingredients to create innovative and high quality beverages including beers, seltzers, spirits and non-alcoholic beverages that our loyal and growing consumer base has come to expect from SweetWater.”