Photographer: Chris Roussakis/Bloomberg

U.S. cannabis retailer

Green Growth Brands Inc. launched a formal bid for

Aphria Inc. valued at about C$2.4 billion ($1.8 billion), less than a month after the Canadian pot producer rejected the
proposal as too low.

Columbus, Ohio-based Green Growth didn’t change the terms of the hostile bid from its initial approach in December. It’s offering 1.5714 Green Growth shares per Aphria share and plans to complete a third-party equity financing of C$300 million at C$7 a share.

Based on current prices, the offer is worth C$9.40 a share for Aphria investors, in line with the C$9.43 close on Tuesday. If Green Growth hits the $7 mark with the equity financing, the offer would be worth C$11 to Aphria shareholders. Green Growth last traded at C$5.98 in Toronto. Aphria fell 3.3 percent in pre-market trading in New York.

The plan raised eyebrows in December, as Green Growth was trading well below C$7 when the proposal was made. Green Growth said Tuesday that shareholder All Js Greenspace LLC has agreed to purchase up to C$150 million shares as a backstop to the financing. The company is seeking other investors for the remainder.

“The combination of Aphria’s Canadian supply and wholesale agreements with Green Growth’s vertically integrated operations and rapidly growing retail footprint in the United States best positions us to capitalize on the massive growth opportunities in North America and beyond,” Peter Horvath, chief executive officer of Green Growth said in a statement Tuesday.

Cross Border

Aphria said in December that Green Growth’s proposal “significantly” undervalued the Leamington, Ontario-based company. In a statement late Tuesday, Aphria urged shareholders to take no action until the board makes a formal recommendation. The hostile offer represents a 23 percent discount to Aphria’s 20-day average share price before the first proposal was made public, Aphria said.

“We are also determined to protect Aphria shareholders from opportunistic offers that fail to reflect the substantial value and growth prospects we have built at Aphria,” according to the
statement.

If Green Growth is successful, it will mark the first large cross-border takeover in the cannabis industry. Canada legalized recreational pot in October and while several U.S. states allow medical or recreational use of the drug, it remains banned at the federal level. Legal consumer spending on cannabis is
expected to reach $5.9 billion in Canada and about $22 billion in the U.S. by 2022, according to Arcview Market Research and BDS Analytics.

The combined company will be one of the largest U.S. cannabis operators by market capitalization and the only North American-wide cannabis operator at significant scale, according to Green Growth’s statement. Its long-term goal is to establish a presence in each U.S. state where the sale of cannabis and cannabidiol is legal.

Schottenstein Family

Green Growth, which is backed by the retail fortune of Ohio’s Schottenstein family, signaled its intention to acquire Aphria in late December, about three weeks after the company came under attack from
short-sellers. Aphria stock lost more than half its value in the days following the short report, which alleged the company paid inflated prices for assets held by insiders. The stock has since regained most of that lost ground.

Short-seller Hindenburg Research called the proposed bid in December “non-credible and likely an attempt to generate the appearance of demand in the hope of spurring credible offers.” It questioned the relationship between the two companies, noting that Green Growth’s second largest shareholder is a fund sponsored by Green Acre Capital, which counted Aphria Chief Executive Officer Vic Neufeld as one of its advisers.

Aphria has appointed a special committee to review the short sellers’ allegations, which it called “false and defamatory,” while Neufeld
announced earlier this month that he’ll transition out of his CEO job in the coming months but will remain on Aphria’s board.

Green Growth’s offer to Aphria shareholders will commence on Wednesday and will remain open until May 9. The firm has retained Canaccord Genuity Group Inc. as its financial adviser and Norton Rose Fulbright Canada LLP for legal advice. Scotiabank and law firm Fasken Martineau DuMoulin LLP are working with Aphria.