Consumer Products

What a Reverse Merger of Aphria and Tilray Means for the Marijuana Market

The marijuana industry got a jolt Wednesday morning following the announcement of a reverse merger of Aphria Inc. (NASDAQ: APHA) and Tilray Inc. (NASDAQ: TLRY) that creates a combined company with an equity value of approximately C$5 billion (US$3.9 billion). The transaction represents a premium of 23% to Tilray’s share price of $7.87 at Tuesday’s close.

Aphria shareholders will receive 0.8381 shares of Tilray stock for each share of Aphria common stock they own, while Tilray shareholders will continue to hold their existing Tilray shares. Upon completion of the transaction, Aphria shareholders will own about 62% of the combined company on a fully diluted basis.

The companies expect to achieve cost savings of C$100 million within 24 months following completion of the deal, now expected to close in the second quarter of 2021, pending regulatory approval in Canada, Germany and the United States. At least two-thirds of Aphria shareholders must approve the deal, while a majority of Tilray shareholders also must give their okay. Once the deal is completed, Aphria will become a wholly-owned subsidiary of Tilray, and the combined company will retain the Tilray name and Nasdaq ticker symbol.

Wednesday’s agreement includes a covenant forbidding either company from soliciting an alternative bid and a C$65 million termination fee that either company must pay if it accepts another offer.

Irwin Simon, Aphria’s board chair and chief executive, will retain those titles when the combination is completed, and seven of the new company’s nine board members will come from Aphria’s current board. Tilray CEO Brendan Kennedy will join the combined company’s board, along with one other director named by Tilray.

Simon commented, “Our highly complementary businesses create a combined company with a leading branded product portfolio, including the most comprehensive Cannabis 2.0 product offerings for patients and consumers, along with significant synergies across our operations in Canada, Europe and the United States.”

The merger comes along with high hopes for a loosening of U.S. restrictions on the sale of cannabis. From the announcement: “When U.S. regulations allow, the Combined Company expects to be well-positioned to compete in the U.S. cannabis market given its existing strong brands and distribution system in addition to its track record of growth in consumer-packaged goods and cannabis.”

A new U.S. administration is expected to be more open to removing marijuana from the list of dangerous drugs. Now that New Jersey has approved the sale of recreational marijuana, industry firms are expecting both New York and Pennsylvania to follow, if for no other reason than to keep tax dollars at home instead of funneling them to New Jersey.

Tilray stock traded up more than 23% on Wednesday, at $9.73 in a 52-week range of $2.43 to $22.95.

Aphria stock traded up around 3% to $8.38, in a 52-week range of $1.95 to $8.88.

Marijuana stocks enjoyed a buying burst on Tuesday, with most firms we track up between 2.3% and 10%.

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