Aphria sells Copperstate Farms stake to Liberty Health Sciences

An Aphria worker looks out over a crop of marijuana in this undated handout image. (THE CANADIAN PRESS / Aphria)

TORONTO -- Aphria Inc. has inked a $20-million deal to sell its stake in Arizona cannabis company Copperstate Farms to an affiliated U.S. firm as the Canadian licensed marijuana producer looks to reduce its direct involvement in medical pot south of the border.

As part of the deal announced Friday, Aphria has agreed to sell its minority interest in Copperstate to Liberty Health Sciences Inc., an investor and operator in the U.S. medical cannabis market. Aphria, based in Leamington, Ont., holds a minority stake in Liberty.

"The sale of Copperstate is an important step in our continued efforts to work collaborately with the TSX and Canadian securities regulatory authorities regarding the divestiture of our direct investment in a U.S. cannabis business," Aphria chief executive Vic Neufeld said in a statement.

The sale is subject to customary closing conditions and expected to close in the second quarter.

This comes after Canada's biggest stock exchange operator warned late last year that U.S. federal law, which classifies marijuana as an illegal schedule 1 drug, takes precedence over state law. The TMX Group, which operates the Toronto Stock Exchange and the TSX Venture, said companies that operate in states where pot is legal are not in compliance with TSX listing requirements and could face a delisting review.

And in January, U.S. Attorney General Jeff Sessions rescinded an Obama-era guidance known as the Cole Memorandum that suggested that the federal government would not intervene in states where the marijuana is legal, allowing legalization to flourish in states including California and Florida. Sessions said in the January memo that he would leave it to federal prosecutors in states where cannabis is legal to decide how aggressively to enforce federal law.

The umbrella organization for Canada's provincial and territorial securities regulators has also said it is considering whether its disclosure-based approach for issuers with U.S. marijuana-related activities "remains appropriate" in light of the decision by Sessions.

In December, Neufeld said the company continued to be in discussions with the TMX Group and that Aphria was moving to reduce its direct involvement in medical cannabis in the U.S. "as best as possible."

Aphria's first foray into the U.S. market was in 2016 with an investment in Copperstate, a medical marijuana producer. Copperstate owns approximately 158,000 square metres of greenhouses in Snowflake, Ariz. -- 20 per cent of which produces medical cannabis.

In April 2017, Aphria announced the launch of its U.S. expansion strategy through a strategic investment in an entity that was renamed Liberty Health Sciences. As part of the transaction, Aphria also licenses its medical brand of cannabis to Liberty for a royalty.

Aphria is also planning to sell 25 per cent of its 38 per cent stake in Liberty, and has put it up for sale, according to a report. A spokesperson for the licensed producer said it had no further comment other than that Aphria is "exploring and considering strategic alternatives with respect to its US cannabis related interests, including the possible divestiture of its investments to strategic, long-term and committed investors in the cannabis industry."