As two giants prepare to become one, an industry, investors and prospective industry entrants, stand by to evaluate the results.
High time for change
Over the past few years, riding on the back of historical legislative change, cannabis production companies in Canada are getting their time in the limelight. These nascent companies are receiving a unique level of attention since they are the first legal players in an emerging industry. Investment predictions change regularly, but demand for product is high (no pun intended) and the race to become a top player is in full swing, even attracting the attention of beer, wine and spirits producers, such as Constellation Brands.
However, the companies most are watching at the moment are Tilray Inc. (Tilray) and Aphria Inc. (Aphria). In December 2020, the two cannabis leaders formally announced a planned merger, sending waves through the industry and lighting a fire under prospective operators and investors. The resultant company, which is expected to retain the Tilray name, has been touted as possibly becoming the first dominant cannabis production company, not just in Canada, but globally.
Meet the players:
Don’t bogart the benefits
Though Alfabank-Adres estimates Tilray and Aphria’s combined market share in Canada would be below 10.0%, many analysts estimate the companies’ global market share of the cannabis industry to be much higher. Moreover, the cost savings associated with the merger are expected to enable the new entity to produce higher volumes, reach more markets and be poised for substantial international growth as cannabis legality continues to spread.
Many pros, few cons:
- The merger is estimated to save the new company up to $100.0 million in yearly costs.
- With savings and combined operations, the resultant company is expected to become the largest multinational cannabis producer.
- Tilray will likely no longer need to purchase cannabis wholesale from third-party producers, as merger is expected to enable higher production volumes for Aphria.
- Tilray’s additional facilities are expected to enable Aphria to expand output capacity and bolster its branded edible and beverage products.
- Its recreational business is primed for rising demand and easing of cannabis laws with a range of established product offerings, ranging between low-end brands and premium offerings.
- Existing companies will likely combine thriving medical businesses, establishing a stronger global footprint.
- Proximity to the United States, along with Aphria’s recent acquisition of US-based SweetWater Brewing Company (SweetWater Brewery), will likely result in merged entity being ideally poised for entry into the US market.
Eye on the horizon
The smartest cannabis producers are making decisions not based on current legislation, but on the perceived future of cannabis legalization, and Tilray and Aphria are no exception. Aside from the respective companies’ statuses as leading cannabis producers, both have made near-prescient moves recently, with Aphria acquiring SweetWater Brewery, a US craft brewery; and Tilray establishing a partnership with global beer producer Anheuser-Busch InBev SA/NV. These connections are far from simple business expansions; in fact, they are forward-thinking strategical moves to ensure the company will be in an optimized position to capitalize on the ever-expanding global market.
Thus, while it may be tempting for onlookers to downplay the merger of Tilray and Aphria, or incorrectly assume its affect will be contained to Canada’s cannabis industry, such skeptics would be wise to reconsider. The future’s largest cannabis producers are likely already here. We are watching them rise.
