A Tilray production site in Cantanhede, Portugal, in 2018.
Photo: patricia de melo moreira/Agence France-Presse/Getty Images
Two Canadian cannabis companies have agreed to merge, creating what they said would be the largest cannabis operation globally by revenue and potentially signaling more deals ahead among cannabis firms.
Aphria Inc. APHA 2.65% and Tilray Inc. TLRY 23.26% said Wednesday their proposed combination would create a company with annual revenue on a pro-forma basis of Canadian $874 million, equivalent to $686 million. The combined company would control 17% of the adult-use Canadian cannabis market by revenue, according to Raymond James, roughly double the shares of three other competitors.
The federal government in Canada legalized recreational use of cannabis in 2018, generating investment for new companies that cultivate the substance and sell it under various brand names. Corona beer brewer Constellation Brands Inc., for example, has invested in Canopy Growth Corp. Some U.S. states allow people to use cannabis for medicinal uses or as a recreational product.
Canadian cannabis companies have at times struggled to generate profits as they navigate what is a relatively new consumer marketplace for publicly traded businesses and regulations across different areas. Aurora Cannabis Inc. said Wednesday that it had closed a facility and cut production at another, moves meant to improve cash flows.
The deal between Aphria and Tilray could signal more mergers and acquisitions ahead across the industry, according to some analysts. “We expect to see a building wave of consolidation among large and small cannabis players alike,” analysts at Raymond James said.
Shares of Aphria rose 3.1% as of the late morning, while Tilray’s stock was up about 21%.
Aphria and Tilray said their planned merger would allow the combined company to generate C$100 million in annual cost savings within two years of its completion. The companies believe some of those savings would result from Aphria producing cannabis for Tilray’s branded products, replacing the need for it to tap the wholesale market.
Both companies also said that their combination would allow the future merged firm to make recreational cannabis use more widely available in certain Canadian provinces and, in international markets, better reach pharmacies and medical users.
The equity value of the combined company, which would operate under the Tilray name and be led by current Aphria Chief Executive Irwin Simon, is C$5 billion, Aphria and Tilray said.
Under terms of the deal, Aphria shareholders will gain 0.8381 shares of Tilray stock for each Aphria share they own under deal terms, the companies said, and own 62% of the combined company’s stock.
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
