Tilray & Aphria: The Analyst Perspective

This morning it was announced that Aphria Inc (TSX: APHA) (NASDAQ: APHA) and Tilray Inc (NASDAQ: TLRY) would be combining to create the largest Canadian cannabis company. The proforma revenue is estimated to be C$874 million, and management indicated there would be roughly C$100 million in annual synergies that would come to fruition within 24 months of the deal closing.

Here’s a take on what the analyst have to say at first impression.

First off is Rahul Sarugaser from Raymond James, who headlines “Wave of Consolidation Has Begun | Aphria and Tilray Combine To Become Largest Canadian Cannabis Company by Revenue.”

Sarugaser says that if the deal closes as described, it will create, “a formidable competitor to cannabis heavyweights CGC and CRON,” who have massive cash liquidity. While creating enormous competition at the top, he says that the new entity might be “potentially, an existential threat to smaller cannabis companies,” due to their hold over a good chunk of the Canadian market place. The combined entity will have a 17% market share (13% Aphria, 4% Tilray), almost double Canopy’s 9%. Raymond’s channel checks provided the data.

Sarugaser adds that they expect to see a “wave of consolidation among large and small cannabis players alik,e” and says Village Farms (NASDAQ: VFF) or Organigram Holdings (NASDAQ: OGI) could be the next companies to get acquired or merge.

Onto Canaccord’s take, Matt Bottomley says that the trailing twelve-month cannabis revenue of the combined co would be C$296 million, or 17% of the retail market share. He adds, “We believe this deal will further cement the combined entity as the #1 player in the Canadian sector.”

Bottomley then says that this merger will help bolster their European operations and better distribute into the U.S. On the European side, Tilray has a 2.7 million square feet EU-GMP production space, and Aphria has their subsidiary CC Pharma which distributes to 13,000 pharmacies.

On the U.S. front, Aphria’s recent SweetWater acquisition, combined with Tilray’s Manitoba Harvest, a branded CBD/hemp/wellness company, sells to 17,000 locations. Bottomley says, “the company will look to carve out a meaningful CPG presence in the U.S. while looking for opportunities to gain exposure to cannabis south of the border once/if regulations allow.”

Finally, Jason Zandberg of PI Financial referred to the impact of the merger as being positive. He comments, “This transaction combines the strength of Aphria in Ontario and Alberta with Tilray’s strength in Quebec to create a market leader in Canada’s C$3.2B recreational cannabis market. In addition, APHA’s strength in Germany combined with Tilray’s strength in Portugal, Poland, Italy, UK, France and the Netherlands creates a dominant European presence.” He then goes on to indicate that they perceive the increased scale of the combined entity to continue to dominate the market.

No price changes as of yet have been issued.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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