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Cannabis grower Aphria Inc. has formally rejected a hostile bid from U.S.-based Green Growth Brands Inc. and is urging its investors to do the same, reiterating Wednesday that the offer “fails to recognize the full and fair value of Aphria.”

The Leamington, Ont.-based company is publicly rebuffing Green Growth’s takeover attempt after Aphria’s board was advised by banker Scotia Capital Inc. that the financial terms were “inadequate.” In securities filings Wednesday, Aphria recommended that shareholders take no action on Green Growth’s offer or withdraw any shares that have already been tendered.

Green Growth formally made an unsolicited all-stock bid to buy Aphria on Jan. 23 after disclosing its intention to do so in late December. It offered 1.5714 shares of Green Growth for each Aphria share. The hostile bid is scheduled to expire on May 9.

In the last few years, the nascent legal cannabis industry has become increasingly crowded, with hundreds of operators in Canada and the United States racing into the business to cash in on legalization. Now, the sector is consolidating, as companies seek scale and lower production costs.

Early in December, Aphria’s stock took a beating after a short-sellers' report raised questions about one of the company’s recent acquisitions. The report sparked a selloff that saw Aphria shares plunge to below $5. However, since Green Growth announced its offer on Dec. 27, Aphria shares have been on a tear, and closed at $12.80 on Wednesday.

Meanwhile, Green Growth’s stock price has not kept up the same pace of gains. It’s trading at $5.53, which is well below the $7-level that Green Growth said the stock would be worth if the deal went through.

Green Growth’s offer would value each Aphria share at $9.22, a 35-per-cent discount to its market value, Aphria said in its circular, using Feb. 4 prices. Aphria also noted that a deal with Green Growth, which is known as GGB, would prohibit the combined entity from listing its shares on the Toronto Stock Exchange and New York Stock Exchange. That’s because Green Growth does business in the United States, where cannabis is legal in some states but illegal under federal law. Both exchanges ban companies that breach U.S. federal law from listing their shares.

“Regardless of their brazen attempts to suggest otherwise, GGB is asking Aphria shareholders to accept a substantial discount on their shares, as well as delisting from both the TSX and NYSE, resulting in a vast dilution of their ownership in Aphria,” Irwin Simon, chair of Aphria’s board, said in a statement. “In return GGB offers shares in an illiquid company with limited operating history, minimal assets and no track record in the cannabis industry.”

A spokesman for Green Growth declined an interview request and said in an e-mail that the company would provide comment on Aphria’s response “in due course.”

Aphria also warns that being forced to delist from North America’s major stock markets could “potentially reduce interest from strategic partners,” such as alcohol, beverage or tobacco companies, that could partner or work with Aphria. In a press release Wednesday, Aphria also flagged that before Green Growth first privately proposed a deal to acquire Aphria in mid-December, its shares were trading as high as $3.50. Its share price started to spike during the time between Green Growth proposed a deal and publicly announced its plan to pursue a hostile takeover.

“Aphria shareholders should also consider the significant increase in volume leading up to the formal commencement of the hostile bid despite there being no material financial news related to GGB,” Aphria’s press release said.

Aphria is being advised by Scotiabank, law firm Fasken Martineau DuMoulin LLP and proxy firm Laurel Hill. The company has created a special committee to review any offers. It is chaired by director Michael Serruya. Green Growth is being advised by Canaccord Genuity, Norton Rose Fulbright Canada LLP and Kingsdale Advisors.

In its opinion letter to Aphria’s independent committee dated Feb. 5, Scotiabank says that Green Growth’s offer to acquire Aphria is “inadequate” from a financial point of view for Aphria’s shareholders. That opinion is based on a number of assumptions made by Scotiabank, including that the allegations against Aphria made by two U.S.-based short-sellers in a December report are “untrue or misleading in all material respects,” the letter said.

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