Atlanta’s SweetWater Brewing Co. has long flirted with cannabis culture, and the relationship is about to become official; the brewery was just purchased by Canadian cannabis company Aphria Inc. [NASDAQ: APHA]

A History of Cannabis-themed Brews

SweetWater is famous for its 420 Extra Pale Ale, which the brewers says was “first conceived in our bat cave on 4/20.” In cannabis culture, of course, 420 is code for marijuana and the brewery leans into the connection. It hosts an annual 420 Fest which celebrates local music and, uh, culture.

The brewing company’s other products include its 420 Strain Series that includes 420 Strain Jack Herer Harvest Ale, a hoppy red IPA, brewed in memory of cannabis activist Jack Herer.  Herer was referred to as the “Emperor of Hemp,” and died in April of 2010.

Other 420 Strain Series products include the G13 IPA, Mango Kush Wheat Ale, and Trainwreck, a hazy double IPA.

Yet perhaps SweetWater’s strongest canna connection is its new line of hard seltzer, Hydroponics, described as “a new hard and heady seltzer brewed for the 420 lifestyle.” The refreshingly dry seltzer is brewed with terpenes from cannabis, giving it a slightly weedy taste.

Hydroponics is currently available in four flavors: Black Cherry Bomb, Lime Haze, Mother of Berries, and SoMANGO. Each 12 ounce can contains 100 calories, five percent ABV, one sugar, and one carb. The plant-based beverage is brewed with all-natural ingredients and is naturally gluten-free.

Good fit with Aphria

Aphria purchased the brewery for $300 million, including $50 million in the form of stock options. The publicly traded company makes medical cannabis products, vape pens and cartridges, and dried flower (or bud).

“We are excited by the opportunity to join a leading global cannabis company and build a successful future based on the strengths we both bring to this combination,” SweetWater’s founder and CEO Freddy Bensch said in a press release announcing the deal.

“Our 420 brand offerings and SweetWater 420 Fest complement Aphria’s cannabis business and create mutual opportunities for accelerated expansion into other cannabis- and beverage-related products in the U.S. and Canada.”

Marijuana has been legal in Canada for adult recreational use since 2018. It was only the second country to legalize cannabis, behind Uruguay.

Currently 15 states in the US have legalized adult use recreational marijuana, while 34 states allow for medical marijuana use. About 31 percent of American adults currently enjoy access to legal recreational cannabis.

The companies waited until after the November 3, 2020, election to announce the deal, as every state with marijuana on the ballot passed their referendums.  Aphria is betting that more US states will join Canada in the trend.

The Transaction

Sweetwater reportedly could gain an additional $65 million in stock equity through the end of 2023, based on a complicated performance formula. Requests for comment on the deal were not immediately answered.

Aphria did say publicly that Sweetwater gets immediate benefits in earnings, and reported that Sweetwater produced adjusted EBITDA of $22.1 million on net sales of $66.6 million in 2019, which was news given that Sweetwater has been a private company without the reporting requirement of public companies.

The transaction serves as exit for TSG Consumer Partners, a private equity firm, which cashes out its confidential investment of 2014.  TSG brought expertise to the table to help the fledgling brewer refine its go-to-market strategy, extend distribution, and launch new beers that target growing consumer sentiment.

Bensch noted in a press release that TSG’s “consumer and branding expertise, paired with our unique value proposition, has enabled us to deliveran ever-expanding offering of authentic and distinct brands to our loyal and growing customer base. We look forward to entering our next chapter with the solid momentum that TSG has helped us establish.”

TSG has also invested in Yard House, which rapidly expanded during TSG ownership and ultimately was swallowed by Darden.  Current investments include UK’s BrewDog, and Hempz, a brand of hemp-based beauty products.

Aphria’s Plans with its new brand

Aphria plans to bring SweetWater 420 to the Canadian drinks market. It will expand its own product lines like Broken Coast, Riff and Good Supply to the US.

None of Sweetwater’s current products have CBD/THC.

Aphria is a global leader in the cannabis market with a mission of “inspiring and empowering the worldwide community to live their very best life.” Aphria was interested in SweetWater due to its cannabis-inspired portfolio.

“Our strong balance sheet and access to capital have enabled us to enter the US through this strategic and accretive acquisition. We will establish and grow our U.S. presence through SweetWater’s robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise,” said Irwin Simon, Aphria’s chairman and CEO.

“At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization.”

CBD Beverages are Growing

Trend for CBD beverages increases at a steady rate, and growth by acquisition continues.  Canopy Growth Corp (CGC) recently began marketing beverages with THC.  Canopy investements include Constellation Brands.  CEO David Klein told Bloomberg news, “Just as hard seltzer disrupted beer by providing a lighter, low-calorie alternative, we believe cannabis beverages will be an attractive option for what have traditionally been alcohol-driven occasions.”

Rogue Brewing produces Rogue Recreational CBD Seltzer, offered in three flavors.  The Newport, Oregon, brewer’s product is alcohol-free and contains only 20 calories in a 12-ounce can.  Dharma Tamm, Rogue President, commented at the time of the June, 2020, release, “CBD beverages are incredibly exciting, and we are very proud to offer them to our fans in our home state.”

Erin Grafton
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