$AOI Publicly-Traded Global Tobacco Company Bets on Cannabis
February 8, 2018 at 6:17 pm
Exclusive article by Alan Brochstein, CFA
Alliance One International (NYSE: #AOI), a global contractor, processor and supplier of tobacco, announced today that it is entering the U.S. industrial hemp industry and taking controlling stakes in two Canadian cannabis companies, Canada’s Island Garden, a licensed producer, and Goldleaf Pharm, an applicant. The company issued a press release detailing the moves after the close of business today. The investments into Canada represent the second cross-border investment by a U.S publicly-traded company into Canada’s legal cannabis industry after the C$245 million investment by Constellation Brands (NYSE: STZ) into Canopy Growth (TSX: WEED) (OTC: TWMJF) last October.
The company, which has a market capitalization of approximately $117 million and has generated $1.2 billion year-to-date sales through the first three quarters of its 2018 fiscal year, unveiled a new strategy, “One Tomorrow” and provided details about the acquisitions, including a 75% equity stake in Canada’s Island Garden and a 80% stake in GoldLeaf Pharm. The acquisitions were made through its wholly owned indirect subsidiary, Canadian Cultivated Products, Ltd. Neither the filings nor the press release detailed the transaction costs, and the company didn’t respond to an inquiry during the conference call but said that it would do so at a meeting in the summer. It expects to fund the expansions in Canada through cash flow generated from the operations.
Canada’s Island Garden has a 20K sq. ft. indoor growing facility in Prince Edward Island, with plans to boost production capabilities with the addition of a 250K sq. ft. greenhouse. Goldleaf is completing a 20K sq. ft. indoor facility in Ontario. Alliance One expects the two companies to have a total of 1 million square feet within three years, including the addition of 710K sq. ft at Goldleaf.
Alliance One International also made an investment into a North-Carolina based company, Criticality, acquiring a 40% stake with the ability to increase the ownership to 50% after March 31, 2020. Criticality is part of a pilot program in North Carolina and intends to extract CBD from industrial hemp, with a five-year goal of becoming a “leader in CBD production and consumer products.” The company’s 10-Q filing showed an investment of $10 million, which is likely the purchase cost of the transaction, which closed in December.
Alliance One International’s stock closed at $13.00 in trading on Thursday but was quoted as high as $15.10 in after-hours trading. AOI has traded as high as $65 over the past decade:
