Medical pot firm launches plans for U.S. expansion

Aphria’s $25M investment in Florida comes as legal crackdown not foreseen

Medical marijuana producer Aphria Inc. is dipping its toes into the lucrative U.S. market with an initial $25 million investment to set up shop in Florida, which recently legalized pot for medical use.

The foray is its first major step in a U.S. expansion strategy through a series of transactions. The result will be a new company called Liberty Health Sciences Inc., a subsidiary of Canadian Securities Exchange-listed SecureCom Mobile Inc. that will acquire Chestnut Hill Tree Farm, which is one of the seven companies licensed in Florida to dispense marijuana to patients.

The company, which will operate in the U.S. as Aphria USA, plans to expand into the 28 states that have legalized medical marijuana, it announced after markets closed Tuesday. It will also raise $35 million through a private placement.

“Aphria’s success story is no longer limited to Canada,” said Vic Neufeld, Aphria’s chief executive officer, who will be appointed to Liberty’s board. “We will continue to examine other U.S. opportunities and strive to introduce new states to Liberty’s business model.”

Liberty will license the Aphria brand in exchange for a three per cent royalty on sales. It will also license Aphria’s intellectual property in exchange for shares in Liberty. Aphria will appoint two nominees to Liberty’s five-person board of directors and own 37.6 per cent of Liberty shares.

The investment comes after recent comments by U.S. Attorney General Jeff Sessions were widely interpreted as reassuring that there will not be a crackdown on the contentious status of marijuana in the U.S.

Despite the legality of weed in several states, it remains illegal at the federal level, leading to a confusing regulatory environment for companies and investors.

That disconnect between state and federal laws presents Canadian companies with a unique competitive advantage.

The move from Aphria, “a very sophisticated and large player in the sector,” points to the increasing “investability” of the U.S. marijuana sector, said marijuana analyst Vahan Ajamian.

“We view this transaction as a clear signal that the skittishness some investors have regarding investing in the U.S. marijuana sector is diminishing,” he wrote in a note Wednesday.

Aphria, which grows products in greenhouses based in Leamington, Ont., has established itself as a leading low-cost marijuana producer. Growing costs are an important metric in the burgeoning sector as an influx of expected competition will drive prices down and compress margins.

Aphria also has an ownership stake in Copperstate Farms, an Arizona-based medical marijuana producer, and holds an eight per cent interest in Canadian-listed CannaRoyalty, which holds a portfolio of U.S.-based marijuanarelated companies.

Though Canadian companies cannot legally export their products into the U.S., the expertise they have gained are a valuable export many are hoping to sell in an increasing number of countries where marijuana is legal in some form.