Scythian Sells Assets in Latin America to Aphria

A cannabis operator with assets in the international cannabis market confirmed the sale of its South American and Caribbean interests to a major Canadian licensed producer.

In a deal announced on Tuesday (July 17) Scythian Biosciences (TSXV:SCYB) will sell its entire network of cannabis businesses across Argentina, Colombia and Jamaica to Aphria (TSX:APH) through the share acquisition of LATAM Holdings for a reported C$193 million worth in Aphria’s stock issued to Scythian.

“This timely strategic move allows Aphria to leverage Scythian’s first mover progress in the region while expanding on their own global reach and scope,” Scythian CEO Rob Reid said.

“We have spent a considerable amount of time and resources evaluating opportunities in Latin America and the Caribbean and we are confident in the long-term strategic opportunity and the value it will bring to our shareholders,” Vic Neufeld, CEO of Aphria said in a statement.

In addition to purchasing the assets from Scythian through LATAM Holdings’ share acquisition, Aphria will also assume a US$1 million debt bill.

Scythian indicated it obtained an opinion from Haywood Securities saying the value for LATAM Holdings was in the range of C$180 million to C$200 million.

A simple majority of Scythian shareholders must approve the transaction at a meeting the company said will schedule before September 15. The board of directors for the company unanimously approved the Aphria deal and recommended shareholders to vote in favor of it.

Both Scythian and Aphria suffered dips in share price during Tuesday’s trading session following the announcement of this transaction. Scythian’s shares took the bigger hit today as its stock declined in value 20.40 percent, a C$1.01 loss per share for investors, and closed at a price of C$3.94. While Aphria dropped 3.35 percent to a price of C$10.42.

What does Aphria get with this purchase?

If the transaction gets completed, Aphria is eyeing the potential of adding variety of businesses and licenses for cannabis ventures throughout South America.

In Colombia Aphria will obtain a 90 percent stake in Colcanna, a local medical cannabis producer with licenses for the extraction, production, research and exportation of medical cannabis products and importing cannabidiol (CBD).

Aphria will also get Argentinian pharmaceutical import and distribution company ABP, which holds a license for the import of CBD oil products and expands the potential reach of Aphria’s products through South America.

Schytian’s assets will also offer Aphria an entry into the Jamaican market thanks to obtaining Marigold Acquisitions, a company with a 49 percent stake in Marigold Projects Jamaica through wholly owned subsidiary Hampstead Holdings.

This Jamaican venture also holds a portfolio of beneficial licenses for the cannabis market in the country.

Investor takeaway

As the Canadian market keeps expanding with new players and operations appearing nearly  every week, some cannabis ventures –particularly larger public players– have started developing assets in international markets.

Throughout South America a cannabis movement is starting to appear for medical purposes; companies are starting to place bets in the developments of these markets as the promise of Canada leading the march on cannabis legalization solidifies.

In a previous interview with the Investing News Network (INN) Neil Closner, CEO of MedReleaf (TSX:LEAF), voiced an opinion strongly felt throughout observers of the industry: the international medical market is the biggest option available for all these companies.

“Many of those countries [advancing medical cannabis legalization policies] are more medically focused and medical rigorous than even Canada is today,” Closner told INN.

Similarly Alvaro Torres, CEO of Khiron Life Sciences (TSXV:KHRN) told INN LPs are looking for ways to “continue opening up their well-known strategies and well-known cultivation activities” in new markets.

This move also continues a trend of mergers and acquisitions within the cannabis space led by the larger companies in the public markets.

As part of INN’s Q2 2018 review of the cannabis sector, Yasmin Gordon, senior investment advisor with Canaccord Genuity, said she has noticed most of the big companies participating in the M&A activity are being clever in the capital raised leading to conscious business decisions in an attempt for these companies to hold their valuations.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editor’s Note: This story was updated to correct the share price and percentage drop for both companies involved in the story during stock during Tuesday’s trading session.

Editorial Disclosure: Khiron Life Sciences is a client of the Investing News Network. This article is not paid-for content.