In pre-market trading Wednesday morning, shares of the Canadian pot titan Aphria (NASDAQ:APHA) jumped by as much as 15%, while fellow cannabis giant Tilray (NASDAQ:TLRY) saw its stock rise by a handsome 26%.
The spark? Aphria and Tilray are both up by double-digits this morning in response to an article from Bloomberg outlining the details of a possible merger between the two Canadian pot titans. This proposed tie-up would create one of the largest cannabis companies in the world in terms of annual sales.
Per the Bloomberg article, Aphria agreed to pay a 23% premium -- relative to Tilray's closing price of $7.87 on Tuesday -- in an all-stock transaction. The newly combined entity would retain the Tilray name and trade under its current ticker on the Nasdaq stock exchange. Aphria's shareholders would own approximately 62% of Tilray stock upon closing.
Additionally, the merged company would be domiciled in the U.S. in a bid to capture a significant share of this all-important cannabis market. Aphria CEO Irwin Simon would head up the combined entity, while Tilray's boss Brendan Kennedy would downshift to a member of the board. Final approval of the merger reportedly rests with Tilray's shareholders.
Would the revamped version of Tilray be a worthwhile investment? That all depends on your view of the future of the legal cannabis space. Cannabis is undoubtedly a booming industry. But the hard truth is that several pieces still need to fall into place for any of the publicly traded licensed producers to be a truly attractive investing vehicle.
Most importantly, the U.S. must end its prohibition on cannabis at the federal level for large-scale marijuana cultivators to have a realistic shot at turning a healthy profit on a consistent basis. But if you think this landmark event is close at hand, then it might indeed be worth buying shares of this newly formed pot magnate -- that is, following a thumb's up from Tilray's current crop of shareholders.