At the tail end of 2018’s busy M&A season, Ohio-based Green Growth Brands launched a $2.1-billion (C$2.8-billion) bid to acquire Canadian cannabis producer Aphria Inc. The all-stock deal would provide Aphria shareholders with 1.5714 common shares of Green Growth in exchange for each Aphria share.
The proposed Green Growth share price for this transaction is about C$7, notably higher than its currently traded C$5 price. To meet the difference, the company would complete what it’s calling “brokered financing”—preemptively selling shares of its own stock at a premium— to raise C$300 million from investors interested in this deal.
The announcement of the all-stock shareholder proposal comes after “Green Growth engaged Aphria’s board to attempt to negotiate a friendly business combination,” according to Green Growth executives. Those talks did not move forward, leading to the Dec. 27 bid.
“I guess it’s technically a hostile takeover,” Green Growth CEO Peter Horvath told Marketwatch.
Aphria has gathered an independent committee to look at the bid, which executives last week said “severely undervalues” the company. “Aphria believes that [Green Growth Brands] is attempting to acquire the company through a highly conditional offer at a significant discount to its current and future value,” according to Aphria executives in a public statement. What will come of that formal bid review remains to be seen, but there are plenty of recent headlines to inform the public of the context here.
Green Growth Brands formed in February 2018 and completed a reverse-takeover of Toronto-based Xanthic Biopharma in November 2018, shortly after Canada’s regulated adult-use cannabis market opened for business on Oct. 17. The company debuted on the Canadian Stock Exchange several days after the close of that deal.
Green Growth currently owns and operates a majority of The+Source in Las Vegas, Nev., which includes a retail location, a production facility and a cultivation facility. The company was recently awarded seven additional retail licenses in Nevada, and, in December, the company also announced an option to acquire a medical and adult-use dispensary in Henderson, Nev.
Also in December, Green Growth executed a definitive agreement to acquire a retail license, production license and cultivation license from Just Healthy LLC in Massachusetts.
Aphria, meanwhile, has been publicly battling allegations of deceptive investment practices from short-seller hedge fund managers. Gabriel Grego, founder of Quintessential Capital, asserted that Aphria executives had been acquiring Latin American at inflated prices—companies in which Aphria executives had ownership stakes.
In a statement, Aphria called the allegations “false and defamatory.” On the Nasdaq, Aphria shares slid about 25 percent as these headlines ran in early December.
Then there are the alleged ties between Green Growth and Aphria that are catching attention this week.
On Dec. 28, Hindenburg Research published a report that points out that Aphria CEO Vic Neufeld sits on the board of advisers of Green Acre Capital, which runs a fund called GA Opportunities: the second-largest shareholder of Green Growth. (Hindenburg also joined in Quintessential’s allegations of deception in December.)
“We’ve held the line consistently that GA Opportunities was a fund that made an investment in us,” Horvath told Bloomberg. “We didn’t meet with the people that provided the money to them. We didn’t discuss it. It basically was brought to us, ‘Hey, we want to do a private placement with you,’ and we accepted that. Normally we don’t ask who’s behind the money because normally the answer is very complicated.”
(Neufeld stepped down as chair of Aphria’s board on Dec. 27. He remains the CEO.)
In its follow-up press release to the bid announcement, Aphria cited that very Green Acre Capital connection: “Aphria holds a passive investment in Green Acre Capital Fund II, which we understand has invested in numerous emerging cannabis companies, including GGB. The independent committee [reviewing the bid] is comprised of directors with no relationship to Green Acre Capital Fund II or GGB.”
Elsewhere among Green Growth’s largest shareholders is the Schottenstein family, a major retail dynasty that owns DSW and American Eagle (companies that Green Growth CEO Peter Horvath formerly ran as an executive). In 2017, the Schottenstein family jointly applied for a medical marijuana cultivation license in Ohio with Aphria Inc. Their application was unsuccessful.
“The Schottensteins, as far as I know, do not own any Aphria stock,” Horvath told Bloomberg. “Therefore, this is an appropriate transaction. I know that the board of Aphria and the management team of Aphria were not involved in developing this idea. In fact, what’s very visible is that they’ve rejected the idea. I feel everything’s fine, above board and transparent.”