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Marijuana plants grow at the Aphria greenhouse in Leamington, Ont.

GEOFF ROBINS/Globe and Mail

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Aphria Inc. has offloaded the last of its holdings that violate U.S. federal laws in a creative deal that satisfies regulators while retaining the option to get the stake back.

The Leamington, Ont.-based marijuana grower said on Thursday that it has sold its remaining 64 million shares in Florida-based Liberty Health Sciences Inc. to a group of investors, including Aaron Serruya, a Liberty director. It added that the move means that Aphria now complies with TMX Group Ltd.’s policy that prohibits issuers listed on its stock markets from breaching U.S. federal drug law. In the United States, cannabis is legal in some form in certain states – including Florida – but illegal at the federal level.

The stock sale marks the end of a year-long legal tussle that saw startup Aphria defy and publicly oppose the policy imposed last October by the Toronto Stock Exchange, where its shares are listed. For Aphria, the move could pave the way for a U.S. stock listing and set it up to do business with bigger players – including attracting new, deep-pocketed investors, a big Canadian bank as an adviser or lender and one of the global beverage, consumer-goods or pharma giants – that may have stayed away in the past because they didn’t want to be tied to a company running afoul of U.S. federal laws.

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It also caps a period of instability for Liberty, too, which could result in that company entering new U.S. states where cannabis is legal.

Aphria is one of the biggest cannabis companies in Canada and Liberty is like its little brother. They share branding, growing know-how and investors – such as members of the Serruya family, known for their retail businesses. Aphria chief executive Vic Neufeld is also the chair of Liberty's board and multiple senior Aphria executives and directors are investors in Liberty.

Through Liberty’s U.S. expansion, Aphria can line up U.S. assets that it would like to own if cannabis becomes legal federally.

Shares of Aphria and Liberty jumped by 16 per cent on Thursday, while Liberty's stock rose by 7 per cent. Liberty is listed on the Canadian Securities Exchange, which has become the market in the world for U.S. pot firms to go public and raise money.

Aphria is selling its shares for nearly $60-million and scrubbing its balance sheet clean of U.S. assets. But it isn’t completely severing ties with its stake. It has a five-year option to get its position back should U.S. laws and the TSX policy change, it said in a news release.

Think of these buyers as acting as caretakers for Aphria. Instead of paying in cash, the buyers have issued a promissory note, which is like a formal IOU, to Aphria. The note matures in five years and will cost the buyers 12 per cent in interest annually to service. For taking on the risk, Aphria will pay the buyers an annual fee that’s higher than 12 per cent. Aphria can call back the shares at any time and cancel the loan.

The company says this way of scrubbing the Liberty shares off Aphria’s balance sheet complies with the TSX and the grower’s auditors, PwC.

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Members of the Serruya family have bought other Liberty shares from Aphria in the past, starting in February.

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