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How Strong Is Tilray After the Aphria Merger?

By Keith Speights - Jun 23, 2021 at 6:05AM

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The verdict is still out on this marijuana megamerger.

The recent merger of Aphria and Tilray (TLRY -5.17%) created a Canadian cannabis juggernaut. In this Motley Fool Live video recorded on June 11, healthcare and cannabis bureau editor Olivia Zitkus and Motley Fool contributor Keith Speights discuss how strong Tilray is after its merger with Aphria.

Olivia Zitkus: Let's dive into some deals, Keith, if you feel good about that. Yeah, first of all, I wanted to ask you about Tilray, actually. I think you had written a piece recently on Tilray.

As we look at Tilray which recently merged with Aphria, I'm going to drop that ticker at the chat in a moment, how are you looking at the company now that the merger's technically complete? We're not too far into it, but how are you evaluating Tilray's financial position post-merger? Because it doesn't seem like we can really use historical valuation metrics for either company at this point.

Keith Speights: Right. I'm on the fence with this merger, honestly, Olivia. I know there are some analysts who were just super bullish and said this was a perfect match and everything is wonderful. Yeah, maybe.

You basically had an unprofitable company, Tilray, merge with Aphria. Aphria has generated positive EBITDA for several quarters, I think maybe eight quarters in a row or so. But their actual bottom line, it's not that impressive, and the company actually faced some challenges in its latest quarter. Look, bigger isn't always better.

I think the jury is still out, honestly, on whether or not this will end up having been a good deal or not. The company is called Tilray, but really, Aphria was in the driver's seat. This new company is a lot more Aphria than it is Tilray.

Look, I think the biggest issue right now for the new Tilray is that the Canadian market still is in the doldrums. They're still facing some headwinds there, and they can't enter the U.S. cannabis market in a major way just yet.

But both -- Aphria had bought SweetWater Brewing, which is a craft beer maker that focuses on cannabis lifestyle. Then Tilray had Manitoba Harvest, which is a big cannabis producer. But neither of the companies had a really strong platform, in my view, for jumping into the cannabis market in the U.S. if the doors open for them to do so. I think right now I'm just going to take a wait-and-see on that deal.

Zitkus: Totally. The pricing pressure or the difficulties you're describing in Canada, are you thinking mostly about pricing pressure and difficulties? How do legal companies compete with one another, first of all, and then the black market, is that where your mind goes?

Speights: Yeah. The black market is still a big issue in Canada. I think maybe a bigger issue than many people expected it to be, especially after several years into legalization in Canada. The black market is still a major market there. Pricing pressures really don't appear to be subsiding much in Canada right now. That's still a big issue for Tilray.

Aphria does have their German operations and that helps, but the COVID-19 pandemic has hurt them in Germany at least over the last few quarters. I think as COVID fears subside, that could help Tilray through the German operations that it inherited through the Aphria merger. But there are still some challenges, and like I said, I'm just taking a wait-and-see attitude on this one.

Zitkus: Yeah. Totally. It's the south of the border success that I think is what we're all waiting to see and what we're all waiting for, and to see how these companies capitalize off of that.

Keith Speights has no position in any of the stocks mentioned. Olivia Zitkus has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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