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What Investors Need to Know About the Aphria and Tilray Merger

By Eric Volkman - Updated Feb 4, 2021 at 11:48AM

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The two companies actually fit together quite well. Here's why.

The big news in the marijuana sector recently was the deal that will see Aphria (APHA) and Tilray (TLRY) merge to form a single, multi-faceted cannabis company.

In this video from Motley Fool Live from Dec. 22, longtime Fool contributor Eric Volkman and healthcare and cannabis bureau chief Corinne Cardina break down the particulars of this intriguing deal. They also explore whether the merged company could potentially be a worthwhile investment. 


Corinne Cardina: Let's talk about a big splashy deal. Tilray and Aphria are joining in what is being called a pot stock megamerger.

Eric Volkman: Relatively speaking.

Cardina: Can you tell us what investors need to know?

Volkman: Yeah. So basically we can consider it a reverse merger. Essentially Aphria is acquiring Tilray because after the smoke clears and all the shares are exchanged, it's an all-stock transaction.

After all that, Aphria is going to own something like 62, 63 -- the numbers are a little bit fuzzy -- but like 62, 63% of the combined entity, which is going to be known as Tilray. I think that's a good move because I think Tilray has a slightly stronger brand name and recognition. Again, relatively speaking, you're not talking Philip Morris (PM 0.65%) or Exxon (XOM 0.79%) here, these are relatively small companies.

But yeah, the combined company is going to be called Tilray, they claim they are the largest global cannabis company in the world but that's a little bit fudging things. They're going by trailing 12-month revenue and I don't know if going forward that's sustainable. But again relatively speaking, they're going to be a big player in marijuana, they're going to be hard to ignore, they're going to be the largest Canadian marijuana company by far.

There's a lot of benefits to combining. First of all, economies of scale. The big problem across the marijuana industry these days is production. There's a lot of production now that's out there, it's hard to make money on them simply because there's so much weed being grown. That's why we're seeing prices coming down. Anytime a company, or companies, are in a position to cut down on that, to combine assets, to rationalize like that, that's a positive development.

Whether or not Tilray 2.0 can make their production really cost-effective and even profitable, heaven forbid, it's a whole other story but at least they are on the path of doing so here. So that's an encouraging development.

Another nice thing about this merger that shareholders in both companies should be happy about, it's a comprehensive company [together]. They have lots of growing assets, they are active in every consumable product category including the so-called Cannabis 2.0 products in Canada which are derivatives like extracts, there's also beverages, marijuana-infused beverages. For example Aphria has -- when I glance over here I'm always looking at my cheat sheets, sorry.

But Aphria, they bought not long ago SweetWater Brewing. SweetWater Brewing makes a product called 420 Strain, 420 of course being not-so-secret code for marijuana. Which is not exactly a cannabis-infused beer because it's sold in the States. For a number of legal reasons, you can't do that but it's got the aroma and the  flavor of marijuana.

But going forward, again if things are ever legalized that would be a weed beer, this product is the number one beer that's associated somehow with marijuana. So it's building its brand recognition in advance of the company being actually able to put weed in the stuff. Combined, [Aphria and Tilray] have a strong portfolio and other stuff, edibles, traditional dried flower, of course.

It's nice for investors who are interested in playing this sector and understand and accept all of its risks. This is going to be a good sweeping, comprehensive stock to play.

I should mention, they're also quite active in international markets. Aphria has a company called CC Pharma based in Germany, which is very active and quite strong on the German medical marijuana market. Germany, with restrictions, has legalized medical marijuana... but of course basically everywhere in Europe (and around the world while we're at it), recreational use remains illegal.

But CC Pharma actually in the most recently reported Aphria quarter, it was responsible for more than half of Aphria's sales, which tells you something about that market. Probably tells you something about Aphria too. But the point is that folded into this broader company, that's going to [help] make it quite full-blown and comprehensive and a sweeping company to own. It's worth taking a look at.

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