Aphria buys Broken Coast Cannabis in $230M deal

• Licensed marijuana producer Aphria Inc. has signed a deal to buy Broken Coast Cannabis Inc., a cannabis producer on Vancouver Island, in a transaction it valued at $ 230 million in cash and stock.

Under the agreement, Aphria will pay up to $ 10 million in cash with the remainder in shares based on a deemed price of $15.09 per share.

“Adding one of Canada’s most sought- after premium brands represents a major triumph for Aphria and our shareholders and firmly establishes our position as a Canadian leader in premium i ndoor cannabis production,” said Aphria chief executive Vic Neufeld in a statement Monday.

Broken Coast operates an indoor cannabis production facility on Vancouver Island that it is expanding. As part of the transaction, Aphria has approved a further expansion project that is expected to increase the facility’s annual capacity to 10,500 kilograms per year. The deal is anticipated to close by Jan. 31.

Each of t he t hree cofounders of Broken Coast are expected to remain with the company.

“While we are joining a talented large- scale greenhouse operator, Broken Coast will retain a high level of independence and our existing management and production teams will continue to drive our corporate strategy,” Roberto Bresciani, co-founder of Broken Coast, said.

The acquisition comes less than a month after the Leamington, Ont.- based medical marijuana producer said it planned to invest $10 million in a venture merging two cannabis brands to target the incoming recreational pot market in Canada.

That deal merged Ontariobased Tokyo Smoke, which Aphria already holds a stake in, and B.C.-based DOJA Cannabis Co. The new company is expected to be renamed as Hiku Brand Co. Ltd.

Aphria’s acquisition of Broken Coast is also the latest sign of consolidation in the Canadian cannabis sector. Last year, Edmontonbased Aurora Cannabis Inc. launched a hostile, all- stock takeover bid for CanniMed Therapeutics Inc. The Saskatoon- based licensed producer has urged its shareholders to reject Aurora’s bid, saying its own acquisition of the Tragically Hip-backed Newstrike Resources is a superior transaction.

Vahan Ajamian with Beacon Securities Ltd., says Aphria’s acquisition reinforces his view that mergers and acquisitions in the sector will “accelerate” as companies gear up production ahead of recreational sales of pot this summer.

“Key components could include combinations of indoor and greenhouse production and establishing facilities in multiple provinces ( both hallmarks of the Aphria — Broken Coast announcement),” he said in an email.

Aphria shares gained $ 3.68 Monday, rising 20.4 per cent to close at $21.70.