Aphria Inc. (APH), a medical cannabis company based in Leamington, Ontario, has begun to divest from some of its passive assets in the United States and is making a killing in the process. Today the company announced that it had entered into an to sell all of its shares in Liberty Health Sciences Inc. (LHS) that are not subject to Canadian Securities Exchange (CSE) escrow requirements.
The transaction comes in the wake of speculation as to how the CSE and the Toronto Stock Exchange (TSX) will treat Canadian cannabis companies with operations in the United States, where cannabis is still federally illegal. On Friday Aphria began to divest from its U.S. interests when it announced the sale of its interests in Copperstate Farms in Arizona to Liberty Health.
Under this latest transaction, Aphria will sell 26,716,025 shares in Liberty, at a discounted price of $1.25 per share, for a gain of approximately $27 million. The cost of the divested shares was $0.234 per share.
In exchange for selling the shares, Aphria will receive short-term notes for $33,395,031. The short-term notes are non-interest bearing and due on February 26, 2018. The statement said that “As security for the notes, each of the buyers provided the company a guarantee.” Approximately 80% of the shares are being purchased by Michael Serruya, Simon Serruya, and Jack Serruya; either individually or through an affiliate. The remaining 20% of shares are being sold to by an affiliate of Delavaco Capital.
Included in the transaction is a call/put option for the remainder of Aphria’s shares in Liberty, which are still subject to CSE escrow requirements. Each purchaser will sign a promissory note which guarantees the purchaser’s obligations under both promissory note as well as upon the exercise of the call/put option.
Upon close of the transaction, Aphria will still retain approximately 28.1% of issued and outstanding shares of Liberty. John Cervini, of Aphria, will remain on Liberty’s board of directors as well as Aphria CEO Vic Neufeld, who will remain as on Chair of the Board.
“Liberty remains very well positioned to capitalize on opportunities in the U.S. medical cannabis industry and Aphria has received excellent value for its investment in this growing company,” said Neufeld. “Liberty’s success is a testament to its hard work and strong management team and we look forward to watching their continued success as they forge ahead with their growth plans in the U.S.”
Liberty will continue to retain the rights to use of Aphria’s trademarks and preserve its interest in the Aphria Know-How System. In the event that the TSX amends their regulations to allow companies to hold U.S. based cannabis investments, the transaction includes an opt-out option for Aphria; upon which the company agrees to pay $2.5 million to the buyers on a pro-rated basis.