THE RIGHT MIX
FRESH OFF ITS DEAL WITH SHOPPERS DRUG STORES, APHRIA HAS ITS EYE ON RECREATIONAL BRANDS.
Fresh off signing a deal to supply medical marijuana to Canada’s largest pharmacy chain, Aphria Inc. is now “on the hunt” for deals that will give it the right mix of products to interest recreational customers.
“I would say there’s not a month that has gone by in the last year that I haven’t had some unsolicited approach by other ( licensed producers ),” said Vic Neufeld, chief executive of Aphria, in an interview Monday with the Financial Post. “Is there a potential need to add to our portfolio of products under the recreational model? Yes.”
Neufeld’s comments come about seven months out from Canada’s planned legalization of recreational cannabis. They also come a week after Leamington, Ont.based Aphria said it would sell medical marijuana to Loblaw Cos. Ltd.- owned Shoppers Drug Mart, becoming the pharmacy chain’s “primary,” but not exclusive, supplier.
While the financial terms of the deal have not been disclosed, Aphria shares have gained 21 per cent since it was announced, and closed Monday at $ 14.06 in Toronto. The company’s stock price is now up nearly 125 per cent for the year, giving it a market capitalization of over $2 billion.
“When it’s all said and done, this transaction is very material to Aphria,” Neufeld said. “I could see within a year, just on that platform, at least a doubling of our (medical) retail sales.”
The deal has already been hailed as a big moment in the history of Canada’s young marijuana sector.
“Although ( Shoppers) still requires a sales licence from Health Canada, we believe as the market continues to evolve, pharmacies will eventually play a more meaningful role in the medical segment of the industry and this represents a watershed moment for Aphria and the industry as a whole,” said Canaccord Genuity analysts Matt Bottomley and Neil Maruoka in a note.
Days after the deal was announced, rival medical marijuana company CanniMed Therapeutics Inc. announced it had reached a similar agreement to be- come the “sole” supplier of cannabis products to PharmaChoice, a member-owned co- operative representing more than 750 drugstores in Canada.
Neufeld said the possibility of a deal with Shoppers was first discussed in earnest about a year ago. Brickand-mortar pharmacies have been locked out of retailing medical cannabis under Canada’s current laws.
“The only way that they could get into this journey was to become a full licensed producer, but without cultivation,” Neufeld noted. “They’re not a grower. They don’t want be.”
Neufeld said he was “fairly confident” that Shoppers will get its producer licence, which would let it sell medical marijuana online.
In the meantime, Aphria has been expanding its greenhouse facility in Leamington, and aims to expand its capacity to one million square feet. The company also announced Nov. 7 that it had closed a bought-deal offering worth approximately $ 92 million, with the net proceeds expected “to be used in connection with the Company’s construction or acquisition of domestic production facilities,” among other uses.
Neufeld said his company is looking at the consumer preferences of today, and estimated that half of underground sales in Toronto involve marijuana that has been grown indoors in British Columbia.
“Some of the experience of bud grown in B.C., indoor, but from old culture guys, is just what consumers are going to want,” Neufeld said. “They’re getting it now, and they’ ll want it tomorrow. And if you don’t have it, they’ll go elsewhere.”
Neufeld said he hasn’t been excited by any talk of acquisitions on the medical side of his business, where he says that his company is the “lowest cost producer.” Instead, Neufeld said Aphria is looking for recreational brands, and the right “bolton” acquisitions.
“Whether it’s going to be a separate sub- brand, it could possibly be,” said Neufeld. “It’s a wait- and- see until we find the right partner for us to jump into that. But we are absolutely on the hunt for that sort of, I call it a, more than a line extension, it’s an identity extension.”
“Ontario selling Ontario is good,” he added. “Ontario selling B.C. Bud … is really good.”