Aphria Inc (fka APHA)

[FUNMAN]

Here's why a global cannabis giant is buying SweetWater Brewing Company

http://archive.vn/qVbII#selection-1849.0-2475.292

SweetWater Brewing Company will soon be a subsidiary of Aphria Inc.

By Chris Fuhrmeister – Restaurants and Airport Reporter, Atlanta Business Chronicle

Aphria Inc. is buying SweetWater Brewing Company for $300 million.
A major company purchasing a craft beer maker is not an uncommon move, but these deals are typically executed by giants in the beverage industry. Why would Aphria, a Canadian cannabis company with a market capital of $1.2 billion and operations on five continents, see Georgia's largest craft brewery as an investment opportunity?

Aphria CEO Irwin Simon and CFP Carl Merton explained the company's decision in a conference call with market analysts Wednesday, Nov. 4.
Aphria is betting on marijuana legalization in the United States.

On Nov. 3, the day before Aphria and SweetWater announced their deal, voters in Arizona, Montana, New Jersey and South Dakota chose to legalize and tax recreational marijuana. There are now only 15 states — including Georgia — in which recreational marijuana remains fully illegal.

"I think ultimately there will be legalization from the federal level," Simon said during the conference call.

States that allow recreational marijuana consumption require the product to be sold at dispensaries. Simon declined to predict whether there may be a day when traditional package stores might be points of distribution, but either way, Aphria sees SweetWater as a potential avenue into a new market. Aphria is looking into THC-based beverages, which would be produced by SweetWater.

"I think there will be a time when there will be THC drinks that are legal in the U.S.," Merton said. "We want to be able to have a platform to jump into that when that happens, and this gets us there."

SweetWater gives Aphria infrastructure to enter the U.S. market.
Though its stock is traded on the Nasdaq index (APHA), Aphria does not currently have operations in the U.S. SweetWater immediately provides the Ontario-based company with a solid foothold. SweetWater operates out of a 158,000-square-foot facility on Ottley Drive in Atlanta's Buckhead neighborhood with a lease that expires in 2040. The brewery can produce 1.5 million kegs of beer annually, and its bottling and canning lines are capable of packaging 23.5 million gallons of bottles annually.

SweetWater has distribution in 27 states and Washington D.C. Its beverages can be found in approximately 29,000 off-premise retail locations and more than 10,000 restaurants and bars.

"No matter if it’s a hard seltzer or craft brew, Aphria will be able to use SweetWater’s U.S. infrastructure (e.g., manufacturing, marketing, innovation, promotion, distribution) to build awareness in the U.S. for Aphria’s key Canadian cannabis brands — Broken Coast, Good Supply, Riff and Solei — once cannabis is federally legalized in the U.S.," a SweetWater spokesperson said in an email.

In the meantime, SweetWater diversifies Aphria's business.

While Aphria executives are bullish on the future of the weed business in the U.S., Simon and Merton acknowledged there is still plenty of uncertainty. However, take away Aphria's ambitions to market its products to American consumers and expand into the industry of THC-based beverages, and the company still is getting a profitable subsidiary in SweetWater.

"We've looked at many, many options along the way with many different products," Simon said. "What was complementary and strategic for the company was the reason we went ahead and did this.

"It's not like we acquired an MSO that wasn't profitable. We acquired a good strategic business that, long term, is really strategic for Aphria. ... Ultimately, we can get into the beer business if we want in Canada."
SweetWater's net revenue for 2019 was $66.6 million. Its production volume increased 7% year over year to nearly 261,000 barrels. The Brewers Association trade group says that is twice the growth rate of the U.S. craft beer market.

SweetWater is planning significant growth in the U.S.

SweetWater will operate as a wholly owned subsidiary of Aphria, with its executive team and 125 employees intact. In addition to being Georgia's largest producer of craft beer, SweetWater was the 14th-largest in the U.S. for 2019, according to the Brewers Association. CEO Freddy Bensch is setting the brewery's sights even higher, and moving under the Aphria umbrella may help it achieve its goals.

Prior to the arrival of the novel coronavirus pandemic, SweetWater was looking to grow its distribution to reach the West Coast.

"They have an aggressive expansion plan over the next couple of years that basically takes them, over a two-and-a-half-year period, across the rest of the U.S.," Merton said. "That's something that we're very interested in them doing and potentially accelerating as part of this transaction."