Since its management buyout from Aurora Cannabis in May 2020, ALPS has built a blue-chip roster of global customers and a growing pipeline of potential new deals
() () (FRA:AC4) has reached a definitive agreement to acquire 51% of the issued and outstanding shares of cannabis facility design company ALPS, the company announced Wednesday.
Australis will pay between C$13.7 million and nearly C$26 million in total consideration, the company said. Initially, the company will pay C$10 million in either common shares at a price of C$0.20, cash, or a mixture of both. An additional C$2 million will be paid once the deal closes, and a C$1.7 million indemnity holdback to follow after 18 months.
The agreement also has an option for Australis to acquire the remaining 49% within three years. If sufficient milestone payments are made (the maximum milestone payment is $24 million in three installments if ALPS hits cumulative revenues of C$108.7 million and EBITDA of C$48.9 million), the payments will count in part toward that option.
READ: Australis Capital says nearing completion of its acquisitions of ALPS and Green Therapeutics
Since its management buyout from Aurora Cannabis in May 2020, ALPS has built a blue-chip roster of global customers and a growing pipeline of potential new deals, the company said. ALPS is currently executing on a number of contracts, including Aurora, Cann Group, Vertical Harvest and Aldershot Greenhouses.
As part of the move, former Aurora CEO Terry Booth will step into the same role at ALPS.
"The ALPS Transaction and the [Green Therapeutics Inc] acquisition are the first steps in combining forces to build a strong and very hard to imitate MSO in the US cannabis space,” Booth said in a statement. “The opportunity for the cannabis industry has never been greater. Political changes towards acceptance of cannabis in the US will, we believe, drive major regulatory changes in short order. We anticipate that this will result in an exponentially greater opportunity for all cannabis companies in the US, and especially for those that are well differentiated, such as AUSA.”
The concurrent GT deal adds a US cultivator to Australis’ arsenal. Three of the company's cultivars, sold under the GT Flowers brand, have tested for high potency with exceptional terpene profiles.
“We strongly believe that with our assets, team, experience and vision, we have what it takes to build the next generation of [multi-state operators], delivering substantial growth with a strong focus on high-quality, resulting in superior brands and an enhanced bottom line,” Booth added. “The ALPS standard in cultivation and compliance will continue to set the industry benchmark globally, and will be reflected across all of AUSA's operations."
When Booth takes over as CEO, interim CEO Duke Fu will shift over to the COO role.
"With the completion of the Definitive Agreement, we continue to execute at a rapid pace," Fu said. "We are focused on building significant shareholder value, which is reflected in the transaction terms that are EBITDA weighted and back-end loaded through the earn-out provisions."
In addition to delivering profitable revenue growth, Australis expects the deals to enable its strategy to secure low-cost, high-quality biomass to fuel the scale-up of its brands. The moves strongly signal a shift from an investment company to a “formidable, highly recognizable MSO,” the company said.
Because Australis doesn’t rely on third-party cultivated inputs for the manufacturing of its products, the company expects to achieve a much-reduced cost of goods sold. The company believes its three decades of experience in optimized facility design results in high-quality, high-yield products at low operating expenses.
With the ALPS Transaction comes the award-winning west coast brand Mr. Natural, while the GT Transaction brings more award-winning brands, including GT Flowers, Tsunami and Provisions. These transactions set up Australis to expand its footprint in the US and make these brands available to all consumers and patients, the company said.
Specifically, the company has identified a number of significant growth catalysts for the ALPS business:
Growing demand in the legal cannabis sector, including lifecycle-related demand for facility upgrades.
Potential legalization of cannabis at the US federal level creating demand for centralized cultivation facilities
Growing demand for high-tech facilities for more traditional crops such as soft berries and vegetables, as well as newly popular crops (such as algae, in which ALPS has unique expertise)
A drive for operations to become more sustainable, including increased demand for self-sufficiency
ALPS has built a rapidly expanding business development pipeline, the company said, and is in advanced negotiations on potential projects with total capital expenditure in excess of $2.5 billion. The company anticipates that ALPS will convert on multiple opportunities in the coming months.
Additionally, ALPS' new compliance and data-driven service offering, APIS, is designed to create a high-margin, recurring revenue stream. APIS has been resonating strongly with operators, the company said, and interest in this new solution is strong with demand coming both from the regulated cannabis sector and more traditional horticulture market segments. The company recently signed its first APIS contract with Cann Group in Australia.
Board member Avi Geller and Chairperson of AUSA's Compensation and Nominating committee, stated,
“The company is in the late-stage completion of two significant and accretive transactions that will set the stage for success in the US cannabis market,” AUSA Compensation and Nominating Committee Chair Avi Geller said. “[The] committee is focused on attracting the very best talent in every vertical that we intend entering into, be it cannabis or traditional crops, and we have made significant appointments. We are engaged in multiple negotiations that are progressing well.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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