Aphria will let go of its potential US entry as it decides not to pick up its purchase option for Liberty Health Sciences.
Aphria (NYSE:APHA,TSX:APHA) will not pick up its purchase option for a US-based multi-state operator (MSO) of cannabis assets.
On Tuesday (February 19), Aphria’s independent board members Shlomo Bibas, John Herhalt, Tom Looney and Irwin Simon confirmed the company would be ditching a clause in a sale agreement for a controlling stake in Liberty Health Sciences (CSE:LHS).
“The Early Termination and Liquidation represents the ultimate conclusion of Aphria’s investment in Liberty,” the company informed shareholders.
Aphria confirmed from its first investment of C$25 million in Liberty, which was set to be branded “Aphria USA,” that it gained a return of 3.4 times its cumulative investment.
As part of the termination from the independent board members, the company secured a cash consideration of C$47.4 million.
In a statement to the Investing News Network (INN) George Scorsis, CEO of Liberty, said his company has never been “more optimistic about its growth trajectory and the opportunities to create value for its shareholders moving forward.”
Aphria was originally forced to divest its stake in Liberty due to a challenge from exchange regulators, TMX Group, requesting the LP to drop any operations in the US or face the consequences and potential delisting from the exchange.
After a back and forth with regulators, Aphria moved forward looking for an opportunity to get rid of its stake in Liberty and eventually sold its share in the Florida-based MSO to an undisclosed group of buyers in September 2018.
The LP sold a “five-year promissory note due September 6, 2023 bearing interest at 12 [percent] per annum,” for close to over C$59 million. This meant Aphria could repurchase its stake of over 64 million shares in Liberty.
“We intend to be a significant player in the US cannabis industry at the appropriate time in the future,” Vic Neufeld, CEO of Aphria at the time, said of the sale.
Scorsis previously told INN the expectation was for his company to be used as Aphria’s “horse” in the US market race.
While marijuana remains illegal under a federal level in the US, Aphria planted an option with Liberty as a way to eventually enter the US market once it may become legal to do so.
Shares of Aphria in New York took a marginal 0.10 percent dip following the announcement in after hours trading on Tuesday.
At the start of the trading session on Wednesday (February 20), both Aphria and Liberty were up in value over 3 percent and nearly 2 percent respectively at 10:45 a.m. EST.
At the same time the Canadian firm is dropping Liberty, experts of the cannabis space agree MSOs are all the buzz with investors.
Aphria attempts to move past short seller reports
The move by the Canadian marijuana firm reinforces the effects from a short-seller attack from two independent groups, Quintessential Capital Management and Hindenburg Research.
The reports targeted purchases from Aphria in the Latin American market. Aphria’s dealings with Liberty were also challenged by the short sellers in a separate note.
While these reports were later debunked for the Latin American operations, Aphria installed a new independent board and offered a full rebuttal to the short sellers.
“Based on further information available to the Special Committee, it appears that certain of the non-independent directors of the Company had conflicting interests in the Acquisition that were not fully disclosed to the Board,” the announcement from Aphria indicated regarding the Latin American acquisitions.
Despite the rebuttal, Aphria’s executive team was rocked with the transition from Neufeld and co-chair Cole Cacciavillani, both co-founders of the firm. John Cervini, director of the company also will be removed from his role starting in March.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
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