With the proposed acquisition of Atlanta-headquartered SweetWater Brewing Company yesterday, Canadian cannabis company Aphria believes it’s on the path to becoming a vice industry powerhouse.
“This acquisition represents an important step on our journey of becoming a global consumer packaged goods company through a robust portfolio of cannabis and craft brew lifestyle brands that inspire and empower the worldwide community to live their very best lifestyle,” Aphria chairman and CEO Irwin D. Simon said on a conference call Wednesday evening.
SweetWater gives Aphria a platform and infrastructure to distribute products should cannabis become federally legal in the U.S. The brewery, which was the 14th largest by volume in the U.S. in 2019 according to the Brewers Association, distributes its products in 27 states.
Aphria’s long-term goals for the acquisition are threefold: to use SweetWater’s network and cannabis-friendly brand to introduce American consumers to Aphria’s brands if and when cannabis becomes legal at the federal level; introduce Canadian consumers to SweetWater’s beer; and use SweetWater’s brewing bonafides to develop cannabis beverages.
“We see the opportunity with this business coming into the Canadian market, whether it’s 420 [Extra Pale Ale] or some other brands,” Simon said. “And we see them helping us introduce into the market in Canada THC drinks or CBD drinks.”
Part of the SweetWater portfolio that interested Aphria’s leadership is Hydroponics Seltzer, a terpene-infused hard seltzer line (5% ABV, 100 calories).
“We believe the hard seltzer could be a very attractive form of cannabis products and develop over time, and we look for SweetWater to be a strong competitor to White Claw and Truly,” Simon said.
In Canada, Aphria’s adult-use brands include Solei, Riff, Good Supply and Broken Coast. None presently offer cannabis-infused beverages, but Simon views the SweetWater partnership as a potential vehicle to develop them.
“The big thing for us, which is important here, is getting our business into the U.S. with a very, very profitable business, being diversified, where it’s complementary to our main business, which is the cannabis business,” Simon said. “I think there will be a time when there will be THC drinks that will be legal in the U.S., and we wanted to be able to have a platform to jump into that when that happens, and this gets us there.”
Cannabis is not legal for medicinal or recreational purposes at the federal level in the U.S., although it is in 11 states and was approved by voters for legalization in four more on Tuesday. In SweetWater’s home state of Georgia, it is illegal for both uses.
Earlier this fall, Pabst lent its name to the upcoming Pabst Blue Ribbon Cannabis Infused Seltzer. It will be produced by Pabst Labs, a cannabis beverage company with founders that include former Pabst employees but with no financial ties to Pabst. Petaluma, California-based Lagunitas Brewing produces Hi-Fi Hops with cannabis grower AbsoluteXtracts, a hopped sparkling water infused with THC and CBD. Both beverages are only available in California and must be sold through dispensaries.
SweetWater is one of only six top 20 Brewers Association-defined craft breweries by volume to have grown in each of the last four years. Last year, the brewery’s volume increased 7%, to nearly 261,000 barrels.
The sale price of $300 million brings SweetWater’s valuation to $1,149.43 per barrel.
Under the terms of the deal, which is expected to close before the end of 2020, SweetWater will become a wholly owned subsidiary of Aphria, and its shareholders will receive $250 million in cash and $50 million in Aphria stock, with the potential of an additional $66 million cash earnout payout by the end of 2023. SweetWater founder Freddy Bensch will remain the brewery’s CEO and will report to Simon, who founded Hain Celestial Group, a healthy lifestyle CPG company.
The Aphria acquisition of SweetWater also marks the exit of private equity firm TSG Partners from its minority investment in SweetWater, which was made in 2014. During the relationship, New York- and San Francisco-based TSG helped SweetWater “refine the company’s go-to-market strategy, expand its distribution into 17 new states and identify consumer trends to launch innovative new brews that addressed what the craft beer consumer was looking for,” TSG managing director Erik Johnson said in a press release.
SweetWater’s assets include a 158,000 sq. ft. building that houses its production brewery, offices, restaurant and music venue with a lease that ends in 2040. Its brewery has the capability to fill 23.5 million bottles and cans and 1.5 million kegs annually, according to the release.
The brewery’s products are sold in 29,000 off-premise and 10,000 on-premise retail accounts.
Advisors on the deal include Arlington Capital Advisors and Winston & Strawn, which advised SweetWater on financial and legal terms, respectively. Jefferies served as Aphria’s financial advisor and DLA Piper and Fasken Martineau served as Aphria’s legal counsel. Ropes & Gray LLP served as a legal advisor to TSG.