Aphria and Tilray, two of Canada’s largest cannabis companies, recently announced plans to merge to become a giant in the growing marijuana industry. With the rising demand for recreational and medical cannabis in Europe and Canada, the conglomerate is preparing to enter the competitive U.S. market.
Marijuana is illegal under the U.S. federal law; therefore, the conglomerate will not export its products into the country, unless the rules change. The company currently doesn’t have any U.S. based retail or marijuana cultivation licenses.
Despite the prevailing setbacks, the two firms are optimistic that they will get a share of the U.S. cannabis market and have started planning for a possible future. For example, Aphria bought SweetWater Brewing Company based in Georgia for $ 300 million in December 2020. Tilray is the parent company of a CBD company called Manitoba Harvest, which has a U.S. footprint. These two acquisitions could help the conglomerate launch its entry into the U.S. market.
The merger between the two companies is pending relevant regulators’ approval. Once approved, the company is estimated to have a combined market value of $3.9 billion and revenue of $695 million, which will make it a market leader in the cannabis industry.
The New Entity Will Operate as “Tilray”
Once approved, the conglomerate will run as “Tilray.” Aphria’s shareholders will be the majority shareholders with a 62% stake, while Irwin Simon, Aphria’s current CEO, will be the company’s chairman and chief executive officer.
The merger deal is pending approval from regulators in Canada and the U.S, where Tilray and Aphria trade on NASDAQ.
Canadian cannabis companies experienced a difficult 2020 because of crashed prices and a limited market. On the other hand, their counterparts in the U.S. experienced a great year brought by increased demand due to the coronavirus pandemic lockdowns. However, the cannabis business could improve if the U.S. market was open to Canadian cannabis companies. Tilray and Aphria are optimistic that the market may be open to accommodate Canadian firms soon.
Tilray’s CEO, Brendan Kennedy, believes that laws will change to legalize medical cannabis at the federal level. If his projections are right, the company will be able to export medical cannabis to the U.S. Kennedy is optimistic that cannabis will be distributed freely like tobacco and alcohol soon. However, before this happens, the U.S. federal drug laws will require a significant overhaul, which would disrupt the country’s existing cannabis business models.
Layoffs Are Ongoing in Several Canadian Cannabis Companies
The two companies announced the merger when several Canadian marijuana companies were reducing production costs and laying off workers, in an attempt to save themselves from collapsing. The merger could save Tilray because it reported around $250 million in losses in the third quarter of 2020.
The Canadian government legalized recreational marijuana in Canada in 2018. Canadian cannabis investors are optimistic that the Biden government will favor marijuana trading. Although president-elect Joe Biden stated that he supports decriminalization of cannabis, he did not indicate the possibility of changing federal laws that prohibit interstate trade and tax marijuana companies more heavily than other firms.
