Skip to main content

Already under siege from American short-sellers, Aphria Inc. now faces the threat of a takeover by a newly created U.S. cannabis company − a proposal revealed on the same day that Aphria replaced its board chair.

The acquisition proposal from Xanthic Biopharma Inc., operating as Green Growth Brands Ltd., was announced late Thursday. Minutes later, Aphria announced it had removed chief executive officer Vic Neufeld from the role of chair and replaced him with an independent director.

Under the unusual offer, Green Growth plans to announce a takeover of Aphria worth $2.8-billion, or $11 a share − a 45-per-cent premium to Aphria’s closing price. However, a formal bid is still to come.

Story continues below advertisement

Green Growth had a market valuation of a little less than $900-million on Thursday − less than half of Aphria’s worth.

The announcement comes after short-sellers accused Aphria of overpaying for international acquisitions, and alleged that the acquired assets had been owned previously by firms with apparent ties to an adviser and prominent investor in Aphria.

Aphria has called the allegations “false and defamatory," but its shares have plummeted 27 per cent since the short-sellers' arguments were made public in early December.

In the wake of the allegations, Aphria announced on Thursday that Mr. Neufeld will relinquish his dual role as chairman and CEO. Going forward, he will solely be CEO, and Irwin Simon, who founded organic products company The Hain Celestial Group, Inc., will join the board as an independent chair.

Reached by phone on Thursday, Mr. Neufeld did not comment on the board shuffle, but said Aphria’s board was holding a conference call to discuss the offer late on Thursday and added that “this is very unusual." Aphria’s management team is “trying to really understand what they’re trying to present to us," he said.

Aphria’s TSX-listed shares were halted after Thursday’s trading day, closing at $7.57, but its New York Stock Exchange-listed shares were up 25 per cent in the first half hour after the close.

Green Growth is run out of Columbus, Ohio, and its CEO, Peter Horvath, is a former executive at lingerie retailer Victoria’s Secret. He has also worked for American Eagle Outfitters and DSW. Green Growth is backed by the Schottenstein family, who are Ohio-based billionaires that own significant stakes in American Eagle and DSW Shoes.

Story continues below advertisement

“We’re not a bunch of investment bankers or real estate guys trying to make money in cannabis,” Mr. Horvath said in an interview. “Instead, we’re people who’ve operated multibillion-dollar businesses at the highest level [and] competed for customers in saturated markets."

The hope, according to Green Growth, is to combine its management team’s retail expertise with Aphria’s low-cost cannabis production.

In a statement, Green Growth said it “engaged” Aphria’s board and tried to negotiate a friendly deal before going public with its intentions. The proposal to Aphria included keeping the target’s management team and offered seats on the combined board. Mr. Horvath also said he asked for a short exclusivity period to negotiate, but was turned down.

“We want their management team to continue," he said. "We think this play is about taking our talent and their talent and leveraging it across the geographies, because we don’t play in the same geographies.”

Like many of its peers, Aphria saw its shares hit highs in October prior to Canadian cannabis legalization, but then fall during a pot-stock slump in the weeks after. In early December, Aphria faced a short-sellers’ report that suggested the company wildly overpaid for Latin American and Caribbean assets that it bought from companies with which it had close connections. The shares lost 50 per cent of their value in three days and have only partially recovered, leaving the company vulnerable.

Green Growth, which was formed in February, operates medical and recreational cannabis dispensaries in two suburban Las Vegas locations with the brand name The Source and says it wholesales to other dispensaries from its own growing and production facility. This month, it received seven licences from the Nevada Department of Taxation to open new cannabis dispensaries. Green Growth said it could become one of the state’s largest sellers of cannabis. Sales of recreational cannabis in Nevada began in mid-2017.

Story continues below advertisement

Securities filings say Xanthic Biopharma acquired 95 per cent of Nevada Organic Remedies LLC, the Green Growth Brands predecessor, for US$56.75-million on Sept. 4 in a reverse takeover. It had US$18.99-million in revenue in the year ended June 30. Green Growth debuted on the Canadian Securities Exchange last month.

With reports from Mark Rendell

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

Part of cannabis laws and regulations

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter