Agreement will provide incremental revenues of $10 million, which translates into nearly 50% of the annual revenues of Aphria Inc. (TSX: APH) in fiscal 2016
SmallCapPower | August 10, 2017: Aphria Inc. (TSX: APH), one of Canada’s lowest cost producers of cannabis, announced Wednesday that it has entered into a global partnership with Nuuvera, a global cannabis company, to expand production internationally across Europe, Israel and Latin America. However the partnership will initially focus on the Canadian market and tap international markets as regulations loosen and demand increases for medical marijuana in select markets globally.
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As part of the partnership, Aphria will invest $2 million in a Nuuvera common share offering and enter into a supply agreement to supply Nuuvera 1,500 kgs of cannabis (growing to 17,000 kgs when Aphria completes its four-part expansion plan in 2018). The agreement also involves the purchase of 100 acres of the 200 acres of Aphria’s land at Mersea Road 8 for $4.0 million by Nuuvera. For the proposed one million square foot greenhouse on the Mersea Property, Aphria will provide consulting services to Nuuvera for a fee equal to 8% of Nuuvera’s cost to build the facility. Additionally, the partnership involves operational services agreement, wherein Aphria will operate the Mersea Property in exchange for a fee of $0.10 per gram of cannabis harvested in the facility. Aphria anticipates the operational services agreement will yield an annual payment of $10 million once Nuuvera’s greenhouse is fully built out.
Aphria currently sells cannabis for the medical market at the industry’s lowest all-in costs of $1.70 a gram. With significant expansion of the Ontario greenhouse facility expected to be completed in July 2018, Aphria will produce about 100,000 kilos of cannabis a year, which positions the Company to capture the recreational market to be legalized in Canada in mid-2018. The global partnership with Nuuvera will expand its business internationally in key markets such as Latin America and Germany and catch up with other Canadian cannabis producers that have already entered internationally markets, such as Germany and Latin America. In addition to global expansion, the partnership will provide incremental revenues of $10 million, which translates into nearly 50% of the Company’s annual revenues in fiscal 2016.
In terms of valuation, Aphria trades at price to TTM sales of 40.1x and price to book of 3.87x.
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