Aphria aims to dominate recreational cannabis market with Broken Coast buy

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Courtesy of Lift Magazine

Aphria, the Leamington, Ont.-based licensed producer, will be the largest LP [by adjusted EBITDA] once its plans to acquire Vancouver Island LP Broken Coast for $230 million in cash and stock go through, strengthening its portfolio with award-winning, small batch cannabis and advancing previously announced plans to offer premium cannabis to Canada’s legal recreational market in 2018. In a deal that is planned to close January 31, Broken Coast will receive $10 million in cash and the remaining $220 million in shares valued at $15.09.

“Adding one of Canada’s most sought after premium brands represents a major triumph for Aphria and our shareholders and firmly establishes our position as a Canadian leader in premium indoor cannabis production,” Aphria CEO Vic Neufeld said in a statement. “Broken Coast has proven that you can grow premium quality cannabis, charge a reasonable price and earn a profit all at the same time.” By time of publication, the price of Aphria shares (APH) was up over 20 per cent to $21.68.

“We’re cultivators, not capitalists,” declares Broken Coast’s website, and the company has a reputation for its craft approach to cannabis production, which involves growing in indoor strain-specific spaces, hand-trimming and slow-curing the flower. The Ladysmith, B.C. company is nearing completion of an 18,000 square-foot expansion, bringing its total to 44,000 square-feet with capacity to produce 4500 kg of cannabis per year, with another phase planned to increase to 10,500 kg per year. Combined with Aphria’s current production capacity, it brings the potential total to 110,000 kg per year at an average cost of less than $2/g.

Today’s press release emphasized the mutual benefits of the acquisition: Broken Coast has the potential to reach Aphria’s existing client base of approximately 40,000 patients and both will exchange knowledge on scaling up and low-cost cultivation. Aphria will also have access to Broken Coast’s genetic library of more than 1000 seeds.

Broken Coast’s founders plan to remain with the company, and reps at the company say product quality won’t change.

“There are no plans to change the way Broken Coast operates at present, and so our medical clients will continue to receive the same great product they have been getting,” said Broken Coast’s director of quality, Chris Stone, in an email.

But the deal offers a peek into the elusive future recreational market, which cannabis brands are planning for without knowing all of the details yet on marketing or distribution regulations. Earlier this month, Aphria invested $10 million in bringing lifestyle cannabis brands Tokyo Smoke, DOJA and Van der Pop under one umbrella, to be named Hiku.

“The hope is that, at least in some provinces, Hiku will have legal dispensaries operating, either under the DOJA brand or Tokyo Smoke,” said Josh Lyon, head of marketing and partnerships at Tokyo Smoke. “The beautiful thing about this deal is — pending our ability to actually open retail — this gives Hiku access to what is widely viewed as some of the best cannabis in Canada,

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