Canadian cannabis companies Aphria (APHA) and Tilray (TLRY) have announced that the two companies would merge, making it the largest cannabis company by sales. The combined company’s 12-month sales would be C $ 874 million, which is higher than other industry leaders such as Canopy Growth Corp. (CGC) and Curaleaf Holdings Inc. (CURLF).
While many may think Tilray comes out on top because the merged company will use Tilray’s name, Aphria will own more of the company, meaning here’s the boss. Aphria will own approximately 62% of the combined company, and Aphria shareholders will acquire 0.8381 Tilray shares for every Aphria share they own. In addition, Aphria’s current president and CEO, Irwin D. Simon, will lead the new company as president and CEO.
One of the main reasons why Aphria takes the lead in this marriage is the income. In November, Tilray reported that its total revenue for the third quarter was $ 51.4 million and increased by only 2.0% sequentially. The company attributed the disappointing results to the disruption in mass sales and a slight decline in drug sales in Canada, which caused cannabis segment revenues to fall 11% to $ 31.4 million. Total kilos of cannabis equivalents sold fell 53% to 5,107 kilograms, from 10,848 kilograms in the third quarter of the previous year.
Aphria, on the other hand, has yielded much better results, as the company reported in October that its gross revenue was $ 69.6 million in the first quarter of fiscal year 2021. This represented a strong growth, which showed an increase of 23% over the previous quarter. , as well as the sixth consecutive quarter of growth. The company’s net cannabis revenue amounted to $ 62.5 million, a huge 103% increase over the same quarter last year. The company reported an adjusted EBITDA of $ 10.4 million for the cannabis business, which represents an 11% increase over the previous quarter.
Tim Seymour, portfolio manager of the Amplify Seymour Cannabis ETF, said: “Aphria is currently the most profitable Canadian trader and the operating trend and positive EBITDA balance are critical to overweighting the shares of our CNBS ETF. moreover, we are confident that Irwin Simon will position the company even further in what is a clear category of CPG that he has sailed before. ” Seymour went on to say, “Tilray was the inventor of the euphoria in cannabis 1.0. With a market capitalization in excess of $ 20 billion, valuation could never make sense with Canada as a core market.”
Tilray now has a market cap of $ 1.242 billion, which is still very respectable, but, as Seymour noted, disappointed investors brought the stock price back to reality.
“The concept of strategic partners in cannabis was one of the main drivers of valuation, but in many cases there wasn’t much,” he said. “The most important approach for the industry in the last 18 months has been profitability and growth, and both are in an intense supply, especially in the US.”
USA vs. Canada
Although Canada was the first to legalize itself as a country, the U.S. market dominates cannabis sales. Only Canadian cannabis companies are at a disadvantage, which is why so many people are downsizing and closing down their operations. Aphria and Tilray, however, are crossing their fingers that President-elect Biden will pave the way for legalization and create opportunities for Canadian businesses. MJ’s Jason Wilson and ETFMG cannabis research and banking expert said, “The merger is timely as it strengthens the combined company’s ability to take advantage of U.S. federal legalization.”
Aphria, in November, said she would enter the U.S. through a deal to buy the craft brewery Sweetwater Brewing Co. for about $ 300 million. SweetWater is known for beers that use terpenes and hemp flavorings. Aphria said the brand was “closely aligned with the cannabis lifestyle.” Tilray owns Manitoba Harvest, a hemp company that sells products in the United States and Canada. Therefore, both companies are trying to enter the US market in a way that does not bother them with Canadian securities regulators.
In addition to contributing strength in revenue, Aphria puts international business and beverages on the table. Wilson added: “Aphria’s German assets will allow the combined company to increase its global presence, as a growing number of European countries legalize cannabis for medical use, as industry players have been looking to jump on the bandwagon. Next”.
Ideal for Tilray
Ultimately, this deal is great for Tilray and less so for Aphria. Stifel analyst Andrew Carter updated Tilray’s shares to keep them in anticipation that the deal would suggest much improved prospects for Tilray’s shareholders. “On the contrary, we are downsizing Aphria’s shares to maintain them, with the recent performance surpass pushing the shares to a level that we believe fully considers the company’s differentiating points in relation to peers, with compensation and control for conducting this merger given Aphria’s strength in the category, “Carter said. It also set a target price of $ 9.80 C based on the ownership of Aphria of 62% of the combined entity. He added that short-term performance in the Canadian market is unlikely to generate enthusiasm for assessing Aphria’s differentiated growth profile in relation to consumers.
You receive an email alert every time I write an article about real money. Click the “+ Continue” button next to my reference line for this article.