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A Canadian cannabis company just made an unusual deal to gain a foothold in the US, part of a wave of post-election M&A in the industry.
Aphria agreed to buy SweetWater Brewing Company in a cash-and-stock deal worth at least $300 million, the company said on Wednesday. SweetWater, based in Atlanta, is known for its marijuana-themed 420 Extra Pale Ale.
Aphria is one of the largest Canadian cannabis companies, boasting a market cap of well over $1.5 billion.
The deal gives Aphria a big leg up if cannabis is eventually legalized federally in the US. It marks the first time a Canadian cannabis producer has agreed to purchase a beer company outright.
"It's important for us to do business outside Canada and get into the US market," Aphria CEO Irwin Simon said in an interview. "So what better way than to get into the beverage business."
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Beer companies have also made bets on cannabis firms to position for the drug's legalization. Constellation Brands, the maker of Corona beer, purchased a stake in Canopy Growth in 2018, and AB InBev entered into a partnership with Tilray that same year to produce CBD and THC-infused drinks for the Canadian market.
Aphria's deal gives it a foothold in the lucrative US market if, or when, cannabis is federally legalized or the government creates a pathway for Canadian cannabis companies to sell THC-containing products in the US, Simon said. Right now, Canadian companies like Aphria cannot legally own any cannabis assets in the US.
Aphria is paying $250 million in cash and $50 million in stock for SweetWater, and the deal is expected to close before the end of the year, the company said.
Aphria's stock closed up nearly 10% on Thursday, buoyed by news of the deal as well as the strong showing for cannabis legalization on Tuesday. Five US states voted on Tuesday in favor of loosening restrictions on cannabis.
'My ultimate goal is selling THC soda water in the US'
SweetWater's 420 Extra Pale Ale evokes the flavor of marijuana, and is just one element of the beer company's cannabis-themed marketing. SweetWater also hold an annual music festival called the 420 Fest, for example. Simon said SweetWater's marijuana-focused branding makes it the perfect fit as an acquisition target.
SweetWater also provides Aphria with a platform to advertise its cannabis brands like Riff and Solei to US craft beer consumers ahead of legalization, Simon said. If cannabis becomes legal in the US, Simon said it'll be easy to plug Aphria's cannabis beverage — which he says he'll perfect in the legal Canadian market — into SweetWater's bottling and distribution network, ahead of his competitors.
"My ultimate goal is selling THC soda water in the US under the 420 brand," Simon says. "I think the next big drink is THC club soda that millennials will drink. And I want to be ready to pounce on that, if and when that happens."
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Simon, for his part, is a longtime consumer packaged goods executive. He founded Hain Celestial Group, a Nasdaq-listed organic foods company, before taking over the top job at Aphria in December of 2018.
He's not the only CPG-turned-cannabis exec chasing after the THC beverage market. Canopy Growth CEO David Klein, formerly the CFO of Constellation Brands, told Business Insider in August that THC beverages represent an "immense" long-term opportunity.
Canopy Growth said it plans to launch THC beverages in legal states in the US in 2021 through its partnership with US cannabis company Acreage Holdings.
And Pabst Blue Ribbon has licensed its name to a THC-infused seltzer that's marketed in California.
- Read more:
- 7 top cannabis execs break down what marijuana's election sweep means for their companies and the industry's future in the US
- The CEO of Canopy Growth lays out 3 reasons he's 'never been more bullish' on the cannabis industry
- Canadian cannabis companies are setting their sights on Israel as the country develops into a hotbed for medical-marijuana research
- Canadian cannabis companies are setting their sights on Israel as the country develops into a hotbed for medical-marijuana research
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