VIDEO: Liberty Health Sciences Inc (CNSX:LHS) CEO on Aphria Inc (TSE:APH) Divestiture Lock-up
Liberty Health Sciences Inc (CNSX:LHS) (OTCMKTS:LHSIF) (FRA:S6UQ) CEO George Scorsis breaks down the company’s latest press-release on Midas Letter LIVE. The CEO describes how the 18 month lock-up agreement on the divestiture of Liberty Health Sciences stock benefits both parties involved and provides confidence of Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) interest in Liberty’s future success in the U.S. markets. He also discusses the company’s Florida dispensaries growing at a rate of 3,000 patients a week and the current/future U.S. regulatory environment.
James West: We have George Scorsis here who is the CEO of Liberty Health. George, thanks for joining us again
George Scorsis: Thanks for having me.
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James West: George, you guys are putting out a press release this afternoon, which we’re not going to talk about just yet. I’m not going to say anything until I see it cross the wire. Before we talk about that give us an update. What’s happening in Florida?
George Scorsis: Florida has just panned out to be exactly what we thought it was going to be. It’s growing at a rate of 3000 patients a week. One of the fastest growing markets in the U.S. From our standpoint we continue to grow. We’re up to five dispensaries. We offer 24 hour delivery all across the State. It’s about accessibility to us. We want to be a leader with medical but with that we’ve also moved into and almost fully completed our 250,000 square foot greenhouse that we acquired a few months ago. Things are moving well.
James West: Did you ship that down from Leamington?
George Scorsis No, no but some of the know-how for sure.
James West: Sure, so there’s a lot going on. The markets very frothy right now even though it’s summer. Everybody thought the sky was falling in the last week but the whole sector has turned around today and in your impression, how much of that do you think is related to what’s going on in the U.S?
I mean it’s interesting because all of the shenanigans going on and the massive geopolitical presidential side are really having no effect on the advancement incrementally on the cannabis legislation in the U.S and so, I mean do you see that? That’s not a reversible course, is it?
George Scorsis: No, I think what you’re going to see is a easing of the regulatory environment. McConnell is coming out with a hemp farming bill which is going to allow CBD to flow quite openly from state to state. I think there’s going to be other transactions that happen beyond that. But, I do believe that we’re going to see a better regulatory environment for banking, for medical.
I just think you’re going to continuously see more confidence in what’s happening in the U.S. Investors are really liking what’s happening in the U.S environment and putting more money into that market versus it being so exclusively about Canada and the international marketplace. I think the U.S will really be a platform that people look at.
James West: Yeah you bet. So then in Florida, what is the patient sort of flow look like in terms of how fast are they on-boarding patients into the system?
George Scorsis: Yeah, so 130,000 patients is where we’re at today. We’re seeing patients come into the system on average it takes about a week to get into the system. Drastic change from when we first started but we’re continuously seeing an improvement from the regulators.
I think, you know, they really want to work with accessibility. That’s been our platform. How do we get more accessible to patients? How do we give higher quality product and that’s Liberty’s commitment.
James West: Okay, so then is it going to be like California? Where there’s also going to be ultimately a recreational market?
George Scorsis: Well in 2020 the bill comes up. At this point I still think it’s going to remain medical. Florida has a vibrant medical system and I just don’t see it transitioning that fast yet.
James West: Right. Your stock is on a bit of a tear over the last couple of sessions, up call it 15%. Is that in anticipation of you know what’s the moving parts that are happening between your company and Aphria?
George Scorsis: Yeah, I think you know we have always gone to the marketplace. There’s been no disillusion that Aphria has provided us with the IP, the know-how but we are two separate companies. With that, down the road there could be a situation that regulatory environment completely changes and allows for investment from TSX listed companies or New York Stock Exchange companies; that allows for ownership or a greater ownership in American companies.
I would say that although we are distant cousins, we do share a lot of the same philosophies. With that being said it’s a perfect opportunity for them to enter downstream into the U.S.
James West: I’m going to go way out on the forward looking statement and you just shut me down if you want but it sounds to me like Aphria and Liberty Health are trying to make very clear to the market that until something changes, Liberty is going to move forward in the U.S market and ultimately Aphria will have the benefit of Liberty Health’s progress.
George Scorsis: That’s exactly it. I would say that I’m quite confident Aphria will instill a certain level of messaging to the marketplace over the next few months that we are their horse. Ultimately the bigger we grow, the better it is for Aphria downstream. This is about IP and know-how right now but it’ll be about a lot more in the future if Aphria is able to invest heavier into Liberty.
James West: So, I would assume then there’s probably a lot of irons in the fire in the United States that are at various stages of evolution that you probably can’t talk about too much. It’s now market close. I know you’re issuing a press release tonight. Is it okay to talk about it at this point?
George Scorsis: Yeah, we can talk about it. You telegraphed almost perfectly a few moments ago, in the sense that we have just arranged for a lock-up of a transaction that was to take place, which is the next tranche that Aphria was to dilute. It’s roughly 16 million shares. it was going to bring them to 24 % ownership of Liberty Health Sciences to 19%. The transaction will still take place to a third party but that third party will now set in a lock-up agreement for the next 18 months with the opportunity for Aphria to purchase it back at a later point.
I think again what that really shows is that Aphria does have an interest in Liberty. It does have an interest in the U.S and it’s an opportunity for them to hold a very strong position in Liberty for the future.
James West: Okay so that’s a bit of a trend among Canadian LPs. We saw Aurora do an interesting transaction with a warrant and sort of divesting itself superficially of control over its former U.S subsidiary Australis and yet the transaction that resulted makes it very clear that this is still very much controlled by Aurora shareholders.
The same thing now seems to be happening with Aphria.
George Scorsis: Right.
James West: I mean at the end of the day this; LHS is the Aphria play.
George Scorsis: Yeah, you would think so right? Here’s the realities of the industry. The TSX has made it very challenging for people to work within the U.S and invest in the U.S especially with some of the large LPs in Canada. So, people are getting creative and I don’t want to say that there’s manipulation, but they are getting creative.
The U.S will be the largest market in the world. There’s no doubt and for any of the larger LP’s to not participate, I think would be a little bit foolish at this point.
James West: Yeah, you bet. So, this lock up is with a third-party which is disclosed in the press release and these guys are big shareholders in Aphria.
George Scorsis: Yeah, one of our largest shareholders outside of Aphria and they’ve shown a consistent commitment to the business and I think this actually reinforces their commitment. They are willing to participate with Aphria in securing this lock-up at a nominal amount and again we have very good shareholders but Aphria does want to position themselves for the future.
James West: Yeah, okay. Well that’s fantastic George. We’ll leave it there for now and come back to you in due course. Thanks very much for your time today.
George Scorsis: Thanks a lot.
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