Aleafia acquires Emblem in first significant merger since legalization

Two major cannabis companies will be merging in an acquisition that is being hailed as the first significant takeover in the Canadian cannabis industry since legalization.

Medical cannabis producer Aleafia Health Inc. announced Wednesday it will be acquiring Emblem Corp. for $173.2 million in an all-share purchase.

The deal will combine both companies’ medicinal cannabis clinics to create what they say is the largest network of such clinics in Canada. After the deal, the company will have 40 clinics under Aleafia’s Canabo brand, which currently has 22 clinics, and Emblem’s GrowWise Health.

The acquisition allows Aleafia to enter the recreational cannabis market by giving it Emblem’s Symbl recreational brand, which is sold in Ontario, Alberta, Saskatchewan and British Columbia.

Emblem is also one of six licensed producers with a supply agreement with Shoppers Drug Mart, which has been approved by Health Canada to sell medicinal cannabis online, giving Aleafia national medical distribution.

The deal also gives Aleafia a window into the international market through Emblem’s joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. Germany has the world’s largest medical cannabis market, serving more than 82 million, according to Aleafia.

“This is a transformative transaction that positions Aleafia as a global cannabis leader,” Aleafia CEO Geoffrey Benic said in a statement.

Emblem CEO Nick Dean told the Financial Post that the idea of deal began around seven to eight weeks ago, and both companies saw an immediate benefit to a merger.

“They had what we were looking for — the strength to bring patients into clinics. We saw that we could bring a lot of those patients to Emblem,” Dean said.

The acquisition comes during a tough time for Canadian cannabis companies.

Supply shortages have left customers hanging across the country, and have even caused the government of Ontario to limit the number of retail licenses in the province to 25, due to “sever supply shortage.” Some Ontario retailers have said they have had trouble getting licensed producers to meet their supply demand.

This trouble has spread to cannabis company stocks—many have seen a decline since legalization. Aleafia’s shares were down 57 per cent since legalization, while Emblem’s dropped 39 per cent.

But with a nascent cannabis industry, the potential for mergers has given companies hope.

Since the acquisition, Emblem’s shares have risen 12 per cent in the first few hours of trading, while Aleafia shares dipped slightly.

The acquisition should allow Aleafia to meet supply demands across the country.

Aleafia has one indoor in Port Perry, Ont. and an upcoming outdoor facility, as well as farms in the Niagara region and in Scugog, Ont, which is receiving a 150,000 square foot expansion.

These facilities produce 98,000 of dried flower when at full capacity, which will be combined with Emblem’s capacity for 40,000 kilograms annually to put out 138,000 kilograms annually.

After the acquisition, existing Emblem shareholders will have a 41 per cent stake in the combined company, while Aleafia’s shareholders will own the remaining 59 per cent.

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