The last big head of the cannabis industry as 2020 draws to a close could very well set the tone for industry expansion in 2021.
The news is the successful $ 5 billion merger between Tilray (NASDAQ 🙂 and Aphria (NASDAQ :), (TSX 🙂 announced last week.
The two Canadian-based marijuana giants will converge in 2021 under the name of Tilray. The new company will strive to consolidate its stake in Canada, strengthen its position in Europe, and set itself up for major momentum in the U.S. market as the path to federal legalization of weed accelerates as the new Biden administration is on the cusp is due to take office next month.
The merger is expected to be completed in the second quarter of 2021. When that happens, it will claim the title of the world's largest marijuana company, surpassing Canopy Growth (NASDAQ :), (TSX :). Based on the revenue alone, the new company will have estimated sales of approximately $ 875 million, far surpassing Canopy's $ 477 million.
The new Tilray will also claim about 17% of the Canadian marijuana market, a share it plans to double in the coming years. And the merged company is rich in cash and will boast one of the most cost-effective manufacturers in the industry, two attributes that give it a good reputation for quickly entering the coveted US market.
But the question remains: Can two companies that have been steadily losing money come together and in the process be transformed into a viable, profitable powerhouse?
The road ahead is not without its challenges. Both Tilray and Aphria have individually faced over-expansion leading to substantial write-offs, a list of operational errors and the timeline for large-scale expansion to the US, while likely, still cannot be clearly outlined.
Investors are encouraged, but seemingly not too excited and perhaps willing to wait.
Shares of Tilray surged after the announcement of the merger on December 16, up nearly 25% to $ 9.86. But since then, the stock has been steadily receding. Yesterday it closed at $ 8.39, down another 5.6% from the day before, but still above pre-merger levels.
Aphria stock also gained on Wednesday's merger news, peaking at $ 8.45, but has since lost ground. They closed at $ 7.21 on Monday, down 14.6%, but still well above where they were around this time last year.
However, a lesson learned by cannabis investors is that size isn't everything.
Even when it was the largest grower in the world, Canopy Growth began to shrink, scaling back the size of its operations to better position itself for the future. And in that regard, it could very well be one step ahead of the new Tilray.
