By Jeremy C. Owens
Aphria Inc. is jumping into the U.S. with the purchase of a craft-beer company that has been a part of some stoners’ lifestyle for decades.
The Canadian cannabis company announced that it plans to acquire Atlanta’s Sweetwater Brewing Co. for at least $300 million, marrying a long-serving craft brewer known for its “420”-labled beer with the pot industry. While Sweetwater does not make drinks with a cannabis buzz yet, the companies seemed to suggest that could be in the offing as the two sides seek to leverage Sweetwater’s contacts in the U.S. and Aphria’s cannabis ties to find potential benefits to the coupling.
“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,” Sweetwater founder and Chief Executive Freddy Bensch said in Wednesday’s announcement.
Bensch will remain CEO of the company he founded in 1997, long before an explosion in craft breweries, especially in the company’s home state of Georgia. Sweetwater will operate as a wholly owned subsidiary of Aphria, and keep its 125 employees on staff, the companies said.
Aphria shares jumped 11.7% higher to $5.55 at the open of trading Thursday, though gains calmed down as the session moved forward. The stock has fared better than most pot companies of late, losing 3.8% so far this year as the Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ +0.90% has declined 27.7%.
Brewers and pot companies have found each other before, as legal cannabis becomes a part of life in Canada and the U.S. Constellation Brands Inc. /zigman2/quotes/207737284/composite STZ +0.34% is a big investor in Canopy Growth Corp. /zigman2/quotes/200603886/composite CGC +1.15% and has worked with the company on developing and manufacturing cannabis drinks for the Canadian market, and Molson Coors /zigman2/quotes/205165133/composite TAP +2.50% has developed a joint venture with Hexo Corp. /zigman2/quotes/206508254/composite HEXO +0.95% . This deal appears different, however, with a Canadian pot company swallowing a smaller U.S. beer company, instead of a large drinks conglomerate investing in marijuana.
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Aphria plans to pay $250 million in cash and another $50 million in stock for the craft brewer, funded by debt, an at-the-market equity program and cash on hand. Sweetwater could earn an additional $65 million in equity awards through the end of 2023. Aphria said that Sweetwater would be immediately accretive to its earnings per share, and reported that Sweetwater produced adjusted Ebitda of $22.1 million on net sales of $66.6 million in 2019.
“Our strong balance sheet and access to capital have enabled us to enter the U.S. through this strategic and accretive acquisition,” Aphria Chief Executive Irwin Simon said in Wednesday’s announcement. “We will establish and grow our U.S. presence through Sweetwater’s robust, profitable platform of craft-brewing innovation, manufacturing, marketing and distribution expertise.”
While Sweetwater does not make drinks that seek to get users high on cannabis, it is known for bringing the taste and flavor of marijuana to its 420-branded brews. In its announcement, Aphria called out the use of “terpenes and natural hemp flavors that, when combined with select hops, emulate the flavors and aromas of popular cannabis strains,” and mentioned the company’s annual music festival, “Sweetwater 420 Fest,” which occurs in Atlanta every year around April 20.
The companies expect the deal to close by the end of December. The companies held a conference call starting at 4:20 p.m. Eastern time Wednesday to discuss the deal.