When it comes to investing, fads are constantly coming and going. One year, every stock under a certain theme is the “next big thing.” Then the following year, the hype loses all its steam. Such was the case with marijuana stocks. In 2018, they were among the hottest news items on the Street. However, stocks like Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA) lost much of their luster as time went on.
Thankfully for investors in Aphria and Tilray stock, pot stocks are catching fire once more.
Part of that has to do with Biden’s victory in the U.S. Presidential Election this year. Many experts expect marijuana businesses to enjoy greater success under his administration, as the leaf is increasingly legalized across the States.
However, Aphria and Tilray in particular have been thrust back into the spotlight this week. And it’s not just because of a Biden victory.
Rather, Aphria announced plans to merge with Tilray, effectively creating the largest marijuana-based company in the world.
This is big news for the industry — and the two Canadian cannabis companies. But now some investors might wonder how will this affect Tilray stock moving forward? Let’s take a look.
What the Future Holds for Tilray Stock
With the merger news fresh in our minds, it’s perhaps too soon to predict exactly how everything will unfold for the two stocks in particular. Thankfully, experts in the space have offered a few key predications. But first, let’s get the details of the merger out of the way.
Tomi Kilgore and Jeremy C. Owens of MarketWatch summarized the merger as such:
“Aphria shareholders will receive 0.8381 Tilray shares for each Aphria share they own, while Tilray shareholders will have no adjustments made to their holdings. Once the deal is completed, which is expected to occur in the second quarter of 2021, Aphria shareholders will own 62% of Tilray’s outstanding shares … Aphria will become a wholly-owned subsidiary of Tilray.”
The timing of this merger stands out for a few key reasons, first and foremost anticipated federal leniency allowing for marijuana companies to grow under the Biden administration in 2021 and beyond. While both Aphria and Tilray are Canadian-based companies, and they’ve enjoyed moderate success in the Canadian market, where legalization is not an issue, they have yet to reach their full potential by expanding into the U.S.
If marijuana reaches federal legalization in the U.S. under the Biden administration, the timing of this merger is impeccable. As the largest cannabis company, Tilray-Aphria will have the necessary resources to grow its market share, while many other names in the space continue to fade.
That’s the “too long, didn’t read” version of tise bullish thesis. Diving a bit deeper into the merger itself, marijuana investing expert Jason Wilson claims that “[i]n addition to bringing strength in revenue, Aphria brings international business and beverage business to the table.” Such capabilities will play a key role in the newly combined company’s efforts to tap into the lucrative U.S. market. The news also led to an analyst upgrade from Stifel, which projects “greatly enhanced prospects for Tilray shareholders.”
But, as with most things in investing, it’s not all that simple — and the joint company’s success isn’t guaranteed.
The Bottom Line on the Tilray-Aphria Merger
According to Tilray CEO Brendan Kennedy, “[w]ith a strong financial profile, low-cost production, leading brands, distribution network and unique partnerships … the Combined Company will be well-positioned to deliver sustainable, attractive returns for stockholders.” Although this could be mere corporate hype, many experts tend to agree with his assessment. Moving forward, it looks like the future for Tilray stock will be bright.
But there’s still a big “if” bearing down on all of this. Will marijuana be legalized in the U.S. as soon as pot stock investors want? And right now, that answer isn’t a clear-cut yes, whatever the markets might suggest. And the first step towards that — decriminalization — isn’t even a short-term guarantee. In fact, the Biden catalyst might not be as promising as many hope.
Simply put, there’s still a chance for a strong Republican grip on the Senate. Much of the industry’s short-term fate lies in the results of Georgia’s Senate election early next year. If the Republicans maintain power, then initiatives by the Democrats, like the decriminalization of marijuana, might be less viable.
Ultimately, it comes down to this. Right now, Tilray stock is still a gamble. But if you believe in the industry’s growth in the U.S. and abroad, it remains one of the better marijuana plays, especially with the Aphria merger thrown into the mix.
On the date of publication, the author responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.
