Aphria Invests In Hiku Because They Have Money To Spend
By Brandon A. Dorfman
DEC 21, 2017
Recently minted billionaire Aphria Inc. (TSX:APH) announced on Thursday a $10 million equity investment into the newly formed Hiku Brand Company Ltd. The new company resulted from the merger of DOJA Cannabis Company Limited (CSE:DOJA) (OTC:DJACF) ( name changed to HIKU ) and TS BrandCo. Holdings Inc., commonly known as Tokyo Smoke, with the former buying up the latter.
The merger is a strategic move, done with the goal of strengthening their premium lifestyle brands ahead of the start of Canada’s recreational market. Aphria’s investment is in line with their plans to become an industry-wide leader of recreational marijuana in Canada over the coming year. Moreover, the investment gives Hiku a cool $31 million right out of the gate.
"This exciting announcement marks a major step forward in Aphria's recreational cannabis strategy and represents Aphria's first venture into the lucrative British Columbia premium cannabis market," said Aphria CEO Vic Neufeld in a statement.
Who Are DOJA and Tokyo Smoke?
DOJA taps itself as a “premium lifestyle brand” whose primary product is handcrafted cannabis flowers. A licensed producer under the ACMPR, DOJA’s subsidiary is in the process of applying for their Pre-Sales License Inspection, which, under regulatory rules, is necessary before receiving a full license to sell cannabis. Founded by the team behind the SAXX brand of underwear, the company’s production facility resides in the Okanagan Valley in British Columbia.
In a similar vein, Tokyo Smoke also promotes themselves as a “lifestyle brand.” The company focuses on the production of three “C’s” - clothing, coffee, and cannabis. Their flagship location, named Tokyo Smoke Found is in Toronto with the father and son team of Lorne and Alan Gertner as its founders. Current plans are to expand into the U.S. market sometime within the year.
And The New Company Hiku?
It will also consider itself a “lifestyle” company, dealing in handcrafted cannabis production and the retail market. According to a statement, it will be the only craft cannabis producer on the national level, combining not only DOJA and Tokyo Smoke but the Van der Pop label as well. The company touts itself as the best of both DOJA and Tokyo Smoke, a licensed producer under the ACMPR that focuses on clothing, coffee, and cannabis.
Aphria’s Role
After their landmark deal with Shoppers Drug Mart earlier this year, Aphria continues in their quest to dominate the Canadian cannabis market. They already had an existing investment in Tokyo Smoke as of this past summer. That deal saw Aphria spend $1 million in return for 140,845 common shares of the company. Yet, the relationship between the two organizations goes further back than that, as Aphria and Tokyo Smoke entered into an official licensing agreement in September of 2016. Under the terms of that deal, Aphria ships Tokyo Smoke’s medical cannabis under the terms of the ACMPR, with provisions set aside for the opening of Canada’s recreational market.
The New Deal
Now dealing with Hiku, Aphria plans to expand upon the old Tokyo Smoke deal that initially focused only on dried flowers. The new agreement will add cannabis oil to the product list. Aphria will receive 0.8 million units in Hiku shares in return for the signing of the updated supply agreement with the company.
“This strategic partnership and investment from Aphria represents the ultimate validation of Hiku's vision to offer the leading cannabis consumer experience,” said Alan Gertner, Hiku’s Chief Executive Officer. “We are ecstatic to be partnering again with Aphria, a proven operator and greenhouse cannabis cultivator, to bring our products to the Canadian medical and future recreational markets."
Once DOJA’s subsidiary receives their final license under the ACMPR, Aphria, according to the terms of the agreement, will gain access to DOJA’s supply of “premium” West Coast cannabis. Other terms of the agreement have Aphria processing cannabis oil for Hiku, while Aphria receives access to Hiku’s independent retail locations. Conversely, DOJA will have access to Aphria’s distribution network.
"With this landmark partnership, we have the opportunity to offer Canadians a compelling combination of craft British Columbia product, top-notch branding, greenhouse supply and owned retail that will allow Hiku to have a distinct business with high-quality control, high demand and high margin," continued Gertner.
What’s It All Worth?
Aphria will receive 7,194,244 common shares of Hiku at a price of $1.39 per share. Included in the deal for Aphria is a full warrant for each common share it receives, priced at $2.10 per share and exercisable for a two-year period. There is also a forced conversion feature, which prices at $3.05 or roughly 120% of the value of the investment.
"In Hiku, we are investing in refined, up-market brands that align with our commitment to encouraging a more dignified positioning of recreational cannabis use, something we expect will be an important and valuable differentiator for Aphria as Canada moves closer to legalizing recreational cannabis,” Vic Neufeld remarked. “We look forward to working closely with Hiku to support its success and brand leadership in the recreational market."
APHQF Aphria Inc
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