- Canadian cannabis giants Aphria (APHA) and Tilray have unveiled a C$5 billion merger to create the world’s largest cannabis company by revenue
- The two companies collectively generated an industry-leading $874 million in revenue over the last 12 months
- Upon completion of the deal, Aphria and Tilray are expected to hold roughly 17.3 per cent of Canada’s $3.1 billion adult-use retail market
- Aphria’s shareholders will receive 0.8381 shares in Tilray in exchange for each Aphria share held, resulting in Aphria’s shareholders owning roughly 62 per cent of Tilray
- The Canadian cannabis sector is widely thought to have failed to live up to the immense hype that surfaced since the federal Cannabis Act took effect in 2018
- With a transition of the U.S. presidency to Joe Biden, renewed hope for a market resurgence across North America is beginning to emerge
- Shares in Aphria are currently down 4.66 per cent to $9.83 per share
It was October 17, 2018, when the federal Cannabis Act took effect and made Canada the second country, after Uruguay, to formally legalise the cultivation, possession, acquisition and consumption of cannabis.
The legislation gave way to an industry surge reminiscent of the tech boom in the early 2000s, characterised by intense interest from investors and widespread hype for its commercial potential, and sent the share prices of those companies first to the party to eye-watering highs.
In the years since, however, the so-called “green rush” has been on a steep downward trend. It would seem that many of the industry’s players failed to live up to what had been religiously held expectations of success, a disappointment driven largely by poor product quality and availability – at least in the beginning – and cheaper prices on the black market.
“A mix of greed and naivety led this industry to great heights – and has left it on its knees,” said Alastair Moore, co-founder of Hanway Associates, a London-based cannabis consultancy.
“While some made lots of money, others lost their investments and now many others have lost their jobs,” he added.
But, with the recent U.S. election turning over the presidency to Joe Biden, there has been a renewed sense of hope surrounding the potential for Canadian cannabis companies to tap into the lucrative market south of the border.
As it stands, marijuana remains illegal under federal law in the United States. While Biden and his running mate Kamala Harris don’t support full federal legalisation, what they do stand behind is decriminalisation for adult-use, federal legalisation for medicinal purposes, enabling states to set their own laws, and expunging prior cannabis convictions.
None of this is concrete, but it signals a positive shift for the cannabis sector across the whole of North America and opens the door to further progress.
Among a host of companies positioning themselves to take advantage of a possible cannabis resurgence, Aphria (APHA) and Nasdaq-listed Tilray have unveiled a C$5 billion all-stock merger to create the world’s largest cannabis company, with combined revenue over the last 12 months amounting to an industry-leading $874 million.
“We are bringing together two world-class companies that share a culture of innovation, brand development and cultivation to enhance our Canadian, U.S., and international scale as we pursue opportunities for accelerated growth with the strength and flexibility of our balance sheet and access to capital,” said Irwin D. Simon, Chairman and CEO of Aphria.
Simon will lead the combined company as Chairman and CEO while Brendan Kennedy, Tilray’s current CEO, will stay on as a director.
News of the agreement was leaked early on Wednesday morning by in industry consultant with the Twitter handle @BettingBruiser, who hinted at Aphria’s hankering for a business combination.
It looks like $APHA is still looking for a dance partner …
— Betting Bruiser (@BettingBruiser) December 15, 2020
First it was $ACB…
Then $CGC $WEED…
Now $TLRY is at the table talking merger…
Either an elaborate plan by management to leaks rumours before earnings each time or $APHA is super hungry for M&A. #PotStocks
Upon completion of the deal, Aphria and Tilray are expected to hold roughly 17.3 per cent of Canada’s $3.1 billion adult-use retail market, representing the largest share held by any single licensed producer in the country.
Not only that, but the merger is anticipated to deliver approximately $100 million in annual pre-tax cost synergies within a period of two years, particularly within the key areas of cultivation and production, product purchasing, sales and marketing, and corporate expenses.
Both companies already have a foot in the door to the U.S. market, a platform the combined company intends to capitalise on to secure a strong consumer packaged goods presence through two strategic pillars. These include SweetWater Brewing, a cannabis lifestyle branded craft brewer, which Aphria acquired for $381.5 million late last month and Manitoba Harvest, a hemp food manufacturer, which Tilray bought for $419 million in February 2019.
“By leveraging our combined strengths and capabilities, we expect to be able to meet the needs of consumers more effectively all over the world and advance patient care,” Kennedy said.
“With a strong financial profile, low-cost production, leading brands, distribution network and unique partnerships, we believe the combined company will be well-positioned to deliver sustainable, attractive returns for stockholders,” he added.
According to the terms of the deal announced yesterday, Aphria’s shareholders will receive 0.8381 shares in Tilray in exchange for each Aphria share held, resulting in Aphria’s shareholders owning roughly 62 per cent of Tilray.
The combined company will operate under the Tilray name, trading on the Nasdaq under the symbol “TLRY”, while Aphria will become a private unit.
Shares in Aphria are currently down 4.66 per cent to $9.83 per share at 12:09pm EST.
