Aphria (NASDAQ:APHA) and Tilray (NASDAQ:TLRY) shareholders are scheduled to vote on their tentative merger on April 16, 2021. It’s hard to imagine shareholders on either side rejecting the consolidation play. It’s the right move for APHA stock.
In the meantime, I continue to be obsessed with cannabis-infused drinks and edibles. And I’ve said this many times in the past; they are the real prize in the global legalization of recreational-use cannabis.
Apparently, Aphria CEO Irwin Simon agrees, which is great news if you are a buy-and-hold cannabis investor.
Irwin’s Take on Cannabis-Infused Drinks
Aphria completed its $300 million acquisition of Atlanta-based craft brewer Sweetwater Brewing at the end of November. According to the Brewers Association, Sweetwater is the 14th-largest craft brewer in the U.S. by volume.
Sweetwater shareholders got $250 million in cash and $50 million in Aphria stock. Based on a Nov. 30 closing price of $8.38, Sweetwater shareholders sit on approximately $74 million in unrealized gains in less than four months. On an annualized basis, that’s a 444% return [$74 million divided by $50 million divided by 4 months multiplied by 12 months].
Sweetwater management should have asked for more of the deal in stock. Seriously, though, Simon’s got some big plans for the craft beer company. I’d continue to hold the stock for the long haul.
Simon spoke to THCNet in November when APHA announced the deal. He said at the time that he believes cannabis-infused drinks will take the U.S. by storm once the feds have legalized recreational use.
“I am betting that it will be as big as White Claw and Truly,” Simon told THCNet.
That’s pretty darn big.
Proving Naysayers Wrong
In the past 52 weeks, White Claw and Truly, the best-selling and second-best-selling hard seltzers, had $3.2 billion in combined sales. If Aphria/Tilray can get just a tenth of that — Aphria/Tilray combined will have 874 million CAD ($703 million) in sales — that would boost its overall sales by almost 50%.
The THCNet article, playing Devil’s advocate, points out that cannabis-infused drinks haven’t made much penetration in mature markets like Colorado and Oregon. While that might be true, the reality is that until the big beverage distributors can freely move product in most or all of the 50 states, it’s not going to grow as fast as dried flower or even edibles.
However, as Simon points out, a cannabis-infused drink generally will have fewer calories than beer and won’t give you a hangover.
Simon also suggested that Aphria would bring Sweetwater’s 420 brand to Canada, making THC-infused drinks and edibles available for those in the Great White North. My experience here in Nova Scotia is that THC-infused drinks are gaining popularity in Nova Scotia Liquor Commission stores.
The naysayers have it wrong.
The Bottom Line on APHA Stock
According to Euromonitor, the adult-use cannabis market in the U.S. is expected to grow to $54 billion by 2025, with cannabis-infused beverages accounting for a significant chunk of this revenue.
Canopy Growth (NASDAQ:CGC) stumbled out of the gate but proceeded to make big strides through 2020. By September, Canopy had captured a large share of the Canadian ready-to-drink cannabis beverages market, selling more than 1.5 million cans of its THC-infused drinks.
“The fact that in such a short amount of time, we’ve actually been able to capture nearly half of that market in Canada, which is a substantially smaller market than the U.S., is very exciting for us and certainly we are full steam ahead on our beverage portfolio. I’m very encouraged by the results to date,” Canopy’s Global Head of Beverages Andrew Rapsey told FoodDive in September.
Canopy Growth was able to do this in the middle of a pandemic. It speaks volumes about the progress CEO David Klein has made focusing its business. It also suggests the naysayers are seriously underestimating future consumer demand for cannabis-infused products.
Despite Canopy Growth’s share of the Canadian market, I believe there is plenty of room for Aphria/Tilray to thrive in this segment of the adult-use cannabis market.
For this reason, I see APHA stock continuing to move higher as more news surfaces about its successes in the drinks and edibles market.
If you own its stock, I would stay the course. It’s an excellent long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
