Aphria-Tilray Merger Will Win

aphria-and-tilray

Millions of people can now invest because the Robinhood app got rid of fees and gave away free stocks. It was an instant hit with connected millennials and new investors because it was easy to use on phones. Some more experienced investors may laugh at Robinhood investors who buy “meme stocks” like AMC Entertainment and GameStop. However, Robinhood investors are just as likely to own stable stocks like Disney and General Electric.

Tilray

Aphria and Tilray (NASDAQ: TLRY) just finished a huge merger that will make them a giant in the marijuana industry. Even though it trades with the ticker Tilray, Aphria’s management will be in charge. Aphria’s chairman and CEO are now in charge of a business that operates in both Canada and the U.S., while Tilray’s CEO is now on the board of directors.

Outside of North America, the merged company will continue to be a major player in Europe and grow in that role. Aphria’s 2019 purchase of CC Pharma made it the leading importer and distributor of EU pharmaceuticals for the German market. Tilray recently got licenses in Portugal and the U.K. to import and distribute medical cannabis products there.

If marijuana is legalized in the U.S., you can expect Tilray to be a major player there, too. As more states make it legal to use and sell, business is growing. So far, 16 states and the District of Columbia have made it legal, but legalization at the federal level would be the biggest driver of growth.

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Since early November, shares of Aphria (NASDAQ: APHA), a company that makes and sells cannabis, have come back a lot. Think about how the cost went from $5.50 to $20. The value of the stock market right now is about $6 billion. Of course, this rally is happening at the same time as the election for president. With Biden in charge of the White House, it looks more likely that the cannabis industry will have less regulation. But there are other things to think about as well. After all, Aphria is joining forces with a competitor, Tilray (NASDAQ: TLRY).

Merger Terms For APHA Stock

After Aphria and Tilray merge, the new company will be called Tilray, and its shares will still be traded on Nasdaq under the ticker TLRY. Still, the terms of the deal seem to be better for Aphria. What does it all mean? Well, I think that the deal will change APHA stock in a big way and could lead to big long-term gains.

First of all, Irwin Simon, who is the CEO and chairman of the company, will still be in charge. Aphria will also have seven directors, while Tilray will only have two. Next, the deal is better for APHA stock in terms of money. The company will get 0.8381 shares of Tilray, which is equal to about 62% of the new business.

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APHA stock is trading at a discount, which is an interesting fact based on these terms. This is actually an opportunity for arbitrage, where an investor can sell short Tilray and buy Aphria to lock in a profit. But this is definitely a very smart plan. Still, if the deal goes through, which seems likely, there could be a short-term rise in APHA stock.

The Relationships

Even though the cannabis market has room to grow, there is something else a successful business needs: scale. Having a lower price is very important, especially as markets get more and more full. This is why the deal between Aphria and Tilray is so important.

The deal will make the new company the biggest one that sells cannabis (based on revenues). There will also be big savings on costs. They could reach about $78 million in the next couple of years, according to estimates. But this might be a low estimate.

But the merger also has important business synergies. The new group will be the clear leader in the Canadian market, which has been growing steadily. Also, the recreational business will have a strong group of brands that range from cheap to expensive. Some of the products are Riff, Good Supply, B!ngo, and Solei from Aphria, and Grail, Dubon, Canada, and The Batch from Tilray.

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The medical business is also doing well and is known all over the world. The CC Pharma division of Aphria is Germany’s largest importer and distributor. As for Tilray, it’s business in Portugal is strong. Lastly, the new organization will have a good place in the U.S. market. To do this, Aphria has a division called SweetWater Brewing, which makes and sells craft beer.

There are offices for the division in 27 states. Tilray also has its U.S. Hemp and Wellness platform, which has a line of BD products and is sold in 17,000 stores.

Market Opportunity

Cannabis does look like a secular growth market. And it is global. BDSA research shows that by 2026, spending will reach a whopping $55.9 billion. This is equivalent to an annual growth rate of 17 percent. But the opportunities in the U.S. could easily boost these numbers.

By 2025, spending is expected to reach $41 billion, which would be a 21 percent CAGR. Now, the excitement about the U.S. market may be too positive. Most of the time, the Biden administration is focused like a laser on fighting the Covid-19 pandemic.

The Senate also has a razor-thin majority. But the last election showed that more states are moving toward legalization. So, it looks like the same will happen at the federal level in the coming years.

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