U.S. pot sellers buy into Calgary startup
Colorado company sees potential in Canadian market, international sales
A large American cannabis retailer has secured a foothold in the Canadian market by taking a “significant” stake in a Calgary startup producer amid a recent spate of deal-making in the fledgling marijuana sector.
Denver’s privately held LivWell Enlightened Health, one of Colorado’s largest producers and retailers that reportedly surpassed $100 million in annual revenue, has bought an undisclosed share of Calgary-based 51st Parallel Life Sciences.
The private deal gives the Alberta company access to an experienced grower and retailer with a longer track record than any licensed Canadian player.
LivWell, in return, will reap the rewards of helping to build a producer and retailer in Canada with long-term plans to ship internationally, a reach not available to American companies.
“Not only do we gain their cannabis growth capabilities, but we get a level of retail experience that not a single producer in Canada could say they have,” Jason Kujath, 51st Parallel’s president, said Wednesday.
51st Parallel is applying for a federal licence to grow cannabis in Lethbridge, where it plans to produce 3,500 kilograms of pot a year at a 50,000 square-foot facility, with room to nearly quadruple its production capacity. Its first harvest is expected by the third quarter of 2018.
LivWell, which operates 14 stores in Colorado and another in Oregon with 200,000 square feet of production space, secures a “significant” stake but not a controlling interest in the Calgary firm, Kujath said.
The deal follows other mergers and acquisitions in the Canadian cannabis sector, expected to be worth billions in annual sales when retail is legalized July 1.
Alberta’s Aurora Cannabis this week made a bid for Saskatoonbased CanniMed Therapeutics in an all-share deal valued at more than $544 million, excluding debt.
Last month, New York-based Corona maker Constellation Brands bought a nearly 10-per-cent stake in Ontario’s Canopy Growth for $245 million, with the option to double its ownership position in Canada’s largest pot producer for the same price.
Under the 51st Parallel deal, LivWell will become a third-party operator of its Lethbridge facility for five years and assist with the Calgary company’s plans to open three to five retail locations in Alberta planned for July 1.
Since the production facility will not be harvesting the day retail sales are legalized, 51st Parallel will start by selling cannabis from other producers until its own crops are ready.
At that point, up to 70 per cent of products for sale at its retail locations would come from its own supply, with the balance shipped in from other growers.
Alberta became the second province after Manitoba to signal that private operators would be responsible for retail sales, though it hasn’t announced any details, including whether producers will be permitted to sell.
Dean Heizer, LivWell’s executive director, said his company was looking for an investment target where it could have a “direct impact on the structuring and the building of the business, pretty much from the ground up.”
“We are a vertically integrated, seed-to-sale company, and this gave us an opportunity in Canada to do the same thing,” Heizer said.
LivWell was ranked the top American marijuana producer, processor and retailer for the past two years by the Cannabis Business Executive, a Virginia-based online publication, which estimated the company’s revenues last year crested $100 million.
Rob Meagher, editor-in-chief of the company that publishes the rankings, said the Canadian pot market is attractive to American companies like LivWell because producers here can secure export permits to send medical cannabis to other countries with liberalized marijuana laws.
Lucrative new markets are opening in European Union countries, Australia and parts of Latin America, but American producers are forbidden from exporting their marijuana.
Big Canadian producers, such as Aurora, Canopy and B.C.-based Tilray, have been increasing their international footprints in an effort to secure market share.
Kujath said 51st Parallel’s immediate goal is to become an established producer in Alberta, though he does plan to expand internationally over the longer term.
“The game is about getting your ... revenues increased because you have more consumers that have access to legally regulated cannabis,” Meagher said.
“That’s why, I believe, they’ve invested in Canada.”
Not only do we gain their cannabis growth capabilities, but we get a level of retail experience that not a single producer in Canada could say they have