Aphria enters U.S. with US$300M craft beer deal

Aphria Inc. agreed to buy SweetWater Brewing Co. for US$300 million, giving the Ontario-based company a toehold in the U.S. market that is off-limits to Canadian cannabis.

It's the first major deal in the cannabis industry involving craft beer. Chief executive Irwin Simon told Bloomberg News that the deal will give Aphria a recognizable brand in the U.S. and help it launch a line of THC beverages in Canada.

SweetWater, based in Atlanta, makes 420 Extra Pale Ale and other 420-branded drinks that emulate the flavour of cannabis strains. Founded in 1997, the company has distribution in 27 states and Washington D.C.

The deal is US$250 million in cash and US$50 million in stock, and has been approved by Aphria's board of directors. It's expected to close by the end of the year.

The field of beverage-cannabis crossover deals has largely been dominated by big alcohol companies, like Anheuser Busch InBev's partnership with Tilray Inc. and Constellation Brands Inc.'s stake in Canopy Growth Corp. Aphria's transaction reverses the structure of such deals, in which a big alcoholic beverage company invested in a Canadian cannabis company.

The transaction follows a U.S. election that may have made some investors more pessimistic about Canadian companies' prospects to break into the much larger U.S. cannabis market.

“I think legalization will happen in some way or the other, and now Aphria has a foothold,” Simon said in a phone interview. Until legalization does happen, he said Aphria will have an asset in the U.S. that is growing and complements its business.

Simon said Aphria will first introduce its cannabis brands, such as Riff, Soleil and Good Supply, to the U.S. market as cannabis-free beverages via SweetWater products that mimic the products' flavour profiles.

Beer companies are suffering from closed bars during COVID lockdowns and as ready- to- drink canned cocktails and hard seltzers like Truly and White Claw are eroding their market share.

Simon said he sees a huge market for CBD and THC beverages based on those recent entrants to the alcohol category. “Our beverage would be similar to a canned seltzer,” he said. “I think that's your next Truly or White Claw.”