Ontario-based Aphria Inc. (NYSE: APHA) announced Friday that the company has accepted a strategic investment from an unnamed institutional investor of C$100 million (US$76.14 million) to acquire 14.04 million units. Each unit comprises one share of Aphria stock and one-half of one warrant to purchase one share of common stock at C$9.26 for a period of 24 months from the day the transaction closes, now expected to take place on January 31.
Aphria stock closed trading Thursday evening at C$7.58, implying a discount of about 6% of the purchase price for the units that include the warrants. The option price on the warrants works out to a premium of around 22% on just over 7 million shares (half the number of shares in the number of units in the transaction).
The company said it intends to use the proceeds from the sale to finance international expansion, for working capital and for general corporate purposes. At the end of its second fiscal quarter in November, Aphria reported cash and equivalents totaling C$498 million.
CFO Carl Merton commented:
Given the strength of our leadership team, the continued execution of our strategic plan and the robust opportunities we have for growth in the global cannabis industry, we were able to secure this additional capital from a single investor, a significant endorsement of Aphria in these market conditions. We expect this strategic investment to strengthen our balance sheet and propel Aphria forward as we continue to differentiate ourselves in the industry.
Like every cannabis firm doing business last year in Canada, Aphria posted poor results. The stock traded down nearly 21% for the calendar year. For the past 12 months, the stock is down 19%, with most of the loss coming between April and July of 2019.
Aphria has been working on broadening its international footprint. In late 2018, the company paid about C$425 million to acquire distribution rights in parts of Latin America. But then had to take a C$50 million impairment charge on those assets after an independent review that the company must lower the carrying value of the assets due to higher-than-expected expenses. The repercussions of the deal also cost then-CEO Vic Neufeld his job.
In January of 2019, Aphria acquired German pharmaceutical distributor CC Pharma for €18.92 million in cash and an earn-out multiple on future EBITDA of up to another €23.5 million. Now, sales growth has declined as a result of German government policy changes related to reimbursements for medical marijuana patients.
Aphria’s attention to international markets has been bumpy, but its war chest of C$600 million can withstand a lot of little bumps.
In New York, Aphria stock traded down about 4% at $5.53 in the late morning Friday. The stock’s 52-week range is $3.76 to $10.95, and the 12-month price target is around $9.00.
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