The cannabis industry is overdue for some big activity on the mergers and acquisitions front. In March, Harvest Health and Verano backed away from a deal that would've seen the two companies come together in the largest merger in the U.S. cannabis industry to date, valued at $850 million.

If another industry merger does come, it's likely to be much larger than that. Many cannabis companies today are valued at more than $1 billion. And with some pot stocks struggling while others are looking to expand, it may not be all that long before a deal comes together. Here are two possible mergers that could make a lot of sense.

1. Aurora and Aphria

There were already rumors circulating around a possible merger involving Aurora Cannabis (ACB -3.37%) and Aphria (APHA) earlier this year. While nothing ended up materializing from those talks, I still wouldn't rule it out. These are two of the largest cannabis companies in Canada with very different things to offer one another, and both of their shareholders would benefit.

Two people shaking hands on a deal.

Image source: Getty Images.

For Aurora, linking up with Aphria would help improve its financial position overnight. In three of the past five quarters, Aphria has posted a profit, and for five straight quarters, its adjusted earnings before income, taxes, and depreciation (EBITDA) number has been in the black. Aurora, meanwhile, has incurred a loss in all but one of its most recent six quarters, and its one profitable showing was thanks to a boost from other income. That lack of profitability is a big problem for Aurora, and merging with Aphria could alleviate those concerns for its investors.

For Aphria, meanwhile, a merger would make the company a lot bigger a lot quicker. Aurora's total assets, excluding goodwill, total 2.3 billion Canadian dollars; that's more than the CA$1.9 billion that Aphria has after factoring out its goodwill. Both companies also have large global footprints, so combining could not just expand their total global footprint, bring economies of scale, potentially bringing down costs in areas where they both operate.

Aurora has generated CA$306 million in revenue over the past four quarters, while Aphria has reported CA$543 million. Combined, the companies could be well on their way to hitting the CA$1 billion mark next year.

Such a move would create a definitive leader in the Canadian cannabis industry, accelerating Aphria's growth while providing Aurora with the financial stability it needs. It's a merger that could make a lot of sense from both sides. Aphria's market cap of $1.3 billion and Aurora's valuation of just over $1 billion would make the combined company significantly larger than the total value of the now-abandoned Harvest-Verano merger. 

2. Curaleaf and Trulieve

An even bigger, potentially game-changing merger is possible in the U.S. cannabis market: Curaleaf (CURLF -8.78%) and Trulieve Cannabis (TCNNF -5.97%) joining forces. Although there are no known talks going on between these two multistate operators, a deal here could work for both sides. Trulieve is dominant in its home state of Florida, and that's where it's been focusing its efforts, with 55 of its 57 dispensaries located there.

In second-quarter earnings, released Aug. 12 for the period ending June 30, the company said it planned to enter the Massachusetts market next year. It already owns assets there, and in June the state's Cannabis Control Commission gave Trulieve provisional licenses for cultivation and the operation of a retail cannabis establishment.

Also on the company's earnings release, Trulieve CEO Kim Rivers referred to a "[mergers and acquisitions] pipeline" that could "present new opportunities for expansion." While that could simply allude to acquiring smaller cannabis operators within states the company is looking to expand into, a quicker -- and more significant -- move would be to merge with Curaleaf. That company is based in Massachusetts and operates in 23 states. It's also growing its presence throughout the country, including in Florida, where it opened its 29th storefront location earlier this month. Rather than duke it out for market share in both Florida and Massachusetts, by merging the two companies would save resources and potentially improve their margins by not having to compete against one another.

In Q2, Trulieve reported sales of $120.8 million. On Aug. 17, Curaleaf reported its second-quarter results for the same period; its pro forma revenue, including pending acquisitions, totaled $165.4 million. Combined, that would put both companies at about $286 million in revenue; even with no further growth, they could reach the $1 billion mark in sales for a full year. 

Trulieve's market cap is $2.3 billion and Curaleaf is valued at $4.3 billion, making this an even larger potential deal than a merger involving Aphria and Aurora.

Will a deal happen?

These potential deals make sense for a lot of reasons, but that doesn't mean they'll happen. There needs to be a catalyst to bring either pair of companies together. In Canada, the need for cash flow and some long-term stability is what may drive Aurora to make a deal happen with Aphria or another large company. In the U.S., however, the driving force may be the urge to become a large, undisputed industry leader before cannabis is legal in the U.S. and competition increases exponentially. But right now, there's no telling when that will be.

An Aphria-Aurora deal seems the more likely possibility at this point, only because Aurora may be inclined to make a move soon if its financial position deteriorates. And once one deal happens, others could soon follow suit, as the arms race in the cannabis industry may get going again in a hurry.