The merger between Aphria and Tilray is expected to be completed in 2021's second quarter, subject to regulatory approval. Marijuana growers Aphria and Tilray have announced a reverse merger that will create the world's largest cannabis company measured by revenue. The transaction is expected to close in Q2/2021. But that probably won't be enough to … But that probably won't be enough to close the profitability gap on its own. It's a reverse merger. By growing and processing its cannabis in an EU country, the company avoids tariffs that apply to imported products. This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. As a result, it'll have more cash to penetrate larger markets or develop new products compared to its local competitors. The merged company is expected to retain the Tilray name and appoint Aphria Chief Executive Officer Irwin Simon as its CEO, the sources said. It’s a good growth stock for your portfolio if you are looking for solid, long-term cannabis stock investment options. I have heard for every Aphria share someone owns you gain .8 of a share. You then can use your new Tilray shares to close out your short trade on Tilray by giving your new Tilray shares back to the broker who you originally borrowed them from. Alex began writing for the Fool in early 2020 and follows companies in the healthcare sector. More importantly, as Tilray's brand recognition become stronger over time and consumers become more loyal, it won't necessarily need to fight for a larger market share. Currently, during after-market hours, Aphria Inc. is trading at a price of $12.42 compared to Tilray Inc.’s price of $19.70. Historically, some common hurdles for a merger to close may include anti-competition laws or an acquisition of the acquiring company. Aphria reported record gross cannabis revenue and said its merger with Tilray is on track to close in the second calendar quarter of 2021. This is why the spread between Aphria’s current price and the implied price if the deal closes has ballooned as Tilray’s stock price has shot up. The merger would create the world’s biggest global company based on pro forma revenue, which would have been for the last twelve months around CA$874 million ($685 million). Acreage Holdings Q4 2018 Earnings – Ignore the Loss, Focus on the Opportunity, The U.S. Election Cannabis Playbook Part 1. If the cultivation costs are low enough, it might even be able to produce cannabis for its subsidiaries in the U.S. All of the above would go a long way toward supporting earnings growth, not to mention a higher stock price, over time. With Gamestop, anyone shorting the stock lost 4x-10x the amount of money they initially invested. Investors seeking to profit from the merger of Canadian cannabis companies Tilray Inc. and Aphria Inc. are best to do so by buying shares of Aphria, … While both companies adjust their reported margins for fluctuations in the prevailing market price for cannabis, thereby allowing them to report a higher margin than they might under generally accepted accounting principles (GAAP), those still aren't enough to make either consistently profitable, even if the occasional quarter is favorable. Aphria Stock, Tilray Stock, & the Canadian Marijuana Market. In this case, there are many risks if you simply buy Aphria stock hoping the deal closes. But it's important for investors to understand what's looking favorable and what obstacles are likely to persist for the new Tilray. Better Pot Stock: Sundial Growers or Tilray? So, if you have 100 shares in Aphria, after the merger you now have 180. CHA-CHING! 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Tilray has to maintain a share price of $30/sh for you to not lose money buying Aphria and holding it until the deal closes. © 2020 Grizzle. At some point in the future, the business will need to reduce its costs further, or increase the selling price or volume of its most profitable products for the stock's value to grow. Perhaps the most important catalyst for Tilray is the transformative merger with rival, Aphria (NASDAQ: APHA). If this happened they would be looking at steep losses. The business will make products that range from recreational cannabis to bulk hemp and craft beer. If Tilray can maintain its current price of $64/sh you are looking at a massive 90%-100% gain when the deal closes in the second quarter of 2021. Typically, with merger arbitrage professional investors seek to profit off the deal spread without taking a bet on the direction either stock will go. Stock Advisor launched in February of 2002. Returns as of 04/13/2021. First of all, as mentioned above, there is a risk the merger closes but TLRY’s price declines prior to the merger. That's a problem that can be solved with time and effort, but in the meantime, it'll be missing out on the largest segments of the market. Investing.com – Aphria (TSX:APHA) shares fell more than 13% after disappointing earnings outweighed any euphoria generated by its decision to combine with Tilray (NASDAQ:TLRY) to … On Dec 16, 2020, Tilray and Aphria entered into a definitive agreement to combine their businesses (a.k.a. After talking with an institutional investor in the know, he told us the reason for the large spread is that hedge funds and other large investors are scared to short Tilray after the whole Gamestop fiasco. Importantly, the U.S. market is much bigger: According to Emerton, a strategic consultancy, it could be worth $20 billion by 2025. The opinions provided in this article are those of the author and do not constitute investment advice. You will be able to claim all options and stock as a convert to tilray at roughly 84% per apha to tlry. Aphria has agreed to pay a … Right now, the plan is for the new entity's presence in the U.S. to build on the Manitoba Harvest brand of hemp and cannabidiol (CBD) products. Aphria’s stock price could fall for any number of reasons handing you losses on your position in the short term (assuming the deal closes). The combined entity will consolidate resources into one of the industry's largest multinational players, and will retain Tilray's name. Since the merger was announced last December, Tilray shares have detached from the merger price and are trading at a ~30% premium. Tilray is currently at $56/sh but was as low as $12/sh one month ago. Plus, its marijuana may not be as inexpensive if it's produced in Portugal and then shipped to the U.S. or Canada for distribution. Bitcoin (BTC) Price Surge: Has Crypto Spring Sprung? The centerpiece of Tilray's Europe strategy is low-cost cultivation and manufacturing, which is currently based in Portugal. However, the risks are significant when stocks are running this hot. So, if you have a 100 shares in Aphria you will now only have 80. For example, he believes that within two to … Aphria stock dipped and Tilray stock jumped Wednesday after announcing a $3.9 billion merger that the Canadian pot producers said would create the … Essentially Aphria is acquiring Tilray because after the smoke clears and all the shares are exchanged, it's an all-stock transaction. Even if Tilray's production facility in Portugal allows for efficient servicing of demand in Europe, the company will be splitting its efforts by chasing a slice of a much smaller pie. 3) pay a fee or interest for the time they borrowed the stock to the lender. Aurora Q2 2020 Earnings a Mess Will A Gov’t Bailout Save Them from Bankruptcy? Source:HQuality, Shutterstock Summary The net revenue was down by 4.3 per cent when compared to the previous quarter's net revenue. The deal was announced in mid-December. Tilray’s stock price could fall, shrinking the spread, or upside. Aphria and Tilray Inc. (NASDAQ: TLRY) are all set to complete their merger soon. Management is pitching the merger as a sure path to becoming the largest adult-use marijuana company in the world by revenue. Those products can be sold at mass retailers and grocery stores, which isn't the case with medicinal or adult-use cannabis. If you buy an option on either and the tickers update (Apha no longer exists) your options will be turned in to APHAA (I could be wrong on the name but it won't be regular apha anymore) options that can only be traded with other APHAA options. It is a “reverse acquisition” because Aphria’s shareholders will hold approximately 62% of the total equity in Tilray (on a fully diluted basis) with the existing Tilray shareholders holding … As a retail investor, you only really have one option. Investors are worried Tilray could go to the moon, driven by a retail investor buying frenzy and Aphria’s stock price won’t keep pace. Aphria and Tilray currently have a significant presence in the European Union, including in Germany, the political union's largest market for medicinal cannabis. Do US Marijuana Prices Signal Gloomy Days Ahead for Canada? Under the structure of the transaction, at closing, Tilray, Inc. (“ Tilray ”) will issue new shares of Tilray in exchange for all of the outstanding shares of Aphria Inc. (“ Aphria ”) and the Tilray and Aphria businesses will be combined. Aphria merges with Tilray. Through certain links on this site, Grizzle may be compensated by third-party advertisers. In other words, there isn't any existing position that will let the company break into the regulated cannabis markets in states that opt to legalize it. Aphria’s stock price has been steadily increasing since the start of February; however, there is still a difference of over 100% between Aphria’s current price ($26.30 as of close on Feb 10, 2021) and the implied deal price ($53.56 based on TLRY price of $63.91 as of close Feb 10, 2021). Moreover, Aphria’s CEO, Irwin Simon, who will be the combined company CEO after the merger, recently told CNBC to expect major changes in the US. The transaction is structured as a reverse acquisition, where Aphria … … $1,000 shorted turned into $4,000-$10,000 of losses! If you believe in the long term upside of the stock and are willing to ride out the bumps, you will be owning a company with solid upside in our view. I also have heard after the merger each Aphria share will drop to .8. Tilray shares surged 32% in light of the merger news, while Aphria shares jumped more than 6% on Wednesday. So essentially, if APHA is 16% cheaper to buy than a TLRY then it is worth it to buy the APHA because that 16% will print. Simply put, merger arbitrage is when two companies plan to merge, and the stock price of the target company trades below the proposed acquisition price due to uncertainty of if the deal will actually be completed. That came as Aphria - Get Report and Tilray - Get Report agreed to an all-stock merger valued at roughly $4 billion. The combined entity would trade under the ticker symbol of Tilray (TLRY) on the Nasdaq while Aphria shareholders would own the majority 62% stake in the combined entity. If you said, "combining the holdings of two major cultivators to grow a truly colossal amount of marijuana," you're probably already salivating over the merger between Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA), set to happen later this year. Simply put, there's no proposed mechanism by which adding two unprofitable companies together would result in a profitable one. Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer. Then there's the fact that its U.S. and EU operations target different segments of the market, reducing the opportunity for streamlined production. I have seen and heard conflicting reports. Nonetheless, in the first two years after the merger, management expects to realize around $78 million in pre-tax cost savings. You are looking at a 90% gain and as much as a 50% worst-case loss. Nonetheless, in the first two years after the merger, management expects to realize around $78 million in pre-tax cost savings. The new entity's strategy will be to grow its EU operations at the same time as it makes inroads in America. It was a long time coming, but it appears that good times have returned at last to the formerly beleaguered marijuana market. But really at the end of the day every investor needs to make the decision that’s right for their risk tolerance and time horizon. This means the best way for investors that believe this merger will be successful to play the situation is to buy and hold APHA. In short, it'll be very hard to close your position after the merger. Moreover, Aphria’s CEO, Irwin Simon, who will be the combined company CEO after the merger, recently told CNBC to expect major changes in the US. A large spread is usually an indicator of investor skepticism that the deal will really happen. Loyalty will act as a moat, protecting its existing revenue. For more information, please see our Content Disclaimer. Aphria slumped 10% on Thursday after … FEB 23rd UPDATE: A big selloff in the stock of Tilray has shrunk the spread between the deal closing price and Aphria’s current price to a less attractive but more typical level of 12%. 3 Best Marijuana Stocks so Far This Year: Are They Buys Now? There has been a massive shorting increase on Aphria’s shares to 38% Hedge Funds will spend millions to keep the price down. This difference in price, in turn, allows for an investor who believes the merger WILL happen to purchase stock of the target at a discount and realize a profit once the transaction is complete. Why Is Everyone Talking About Tilray Stock? The recent reverse merger acquisition of Tilray announcement by Aphria provides an intriguing pseudo-arbitrage opportunity. In Canada, it could hold slightly more than 17% of the market. And finally, there is the ever-present risk that industry fundamentals decline and the whole sector crumbles. There's no clear trend toward positive earnings before interest, taxes, depreciation, and amortization (EBITDA) over time. 7 Great Stocks to Buy Under $10; Canadian cannabis producers Aphria Inc. and Tilray Inc. are in advanced talks to combine, with an announcement possible as early as this week, according to sources familiar with the matter. merge) and to continue operations under the Tilray corporate name with shares trading on NASDAQ under ticker symbol “TLRY”. Alisa is a financial services professional with over 7 years experience. Tilray's stock surged 14% this week after announcing a merger with Aphria in a deal valued at $4 billion.The merger will result in the biggest Canadian LP, over which Aphria … She holds a Master of Finance from Queen’s University and the CIM designation. Specifically with this stock-for-stock merger, at the time of the deal closing, each share you own of Aphria will convert into a share of Tilray. Alternatively, another risk is that the merger does not close and APHA share price falls. Merger Terms For APHA Stock. We’re motley! These very real risks are why professional investors often choose to lock in the spread and avoid risking losses should either stock move in the wrong direction. This means that if the merger is successful, an investor who buys Aphria stock at the current level would double their money at the time the merger closes, all else being equal. Despite the two green flags I just discussed, neither Aphria nor Tilray has proven that they can consistently make more money than they spend. Her most recent roles include sell-side equity research, covering the cannabis sector, followed by a role on the corporate side of the industry at a licensed Canadian producer. Still, the merger isn't finalized, and there's no guarantee that the resulting business's stock will be a winner. The terms of the merger stipulate that shareholders of Aphria will receive 0.8381 shares of Tilray for each of their Aphria common shares. His interests include exploring his hometown of Boston, traveling in Latin America, and value investing. Market data powered by FactSet and Web Financial Group. Her most recent roles include sell-side equity research, covering the cannabis sector, followed by a role on the corporate side of the industry at a licensed Canadian producer. The transaction is expected to close in Q2/2021. That will allow them to capture at least some of the EU market's value, which could be worth as much as $3.9 billion by 2025 according to a report by BDS Analytics. If Tilray eventually cools off, Aphria stock will fall in price as well. Are Aphria Shares Available at a Discount Now after Tilray Merger? No brokers are lending TLRY stock to retail investors for shorting. The post-merger business will have estimated pro forma revenue of $685 million each year, which should beat Curaleaf's expected $673 million. After Aphria and Tilray merge, the combined entity will be called Tilray and the shares will continue to trade on Nasdaq under the ticker TLRY. At the current conversion expressed from the merger, Aphria should be trading closer to $16.51 (19.7 x .8381 = 16.51). I'm optimistic that the deal will probably work out in the long run. Retail investors could do the same by buying the target company stock (APHA) and simultaneously short a proportionate amount of the acquiring company’s stock (TLRY). The difference between the price they sold for today and the price they pay to buy the stock back at a later date (less fee/interest) is equal to the profit on the short trade. This strategy is known as a hedge, and a hedge is an investment made to reduce risk. Alisa is a financial services professional with over 7 years experience. So while there is often a modest price difference, or “spread”, prior to a merger going through due to the potential of something going wrong and the deal falling apart, it is important to note that this deal has a massive spread, the size of which we rarely see. View the basic APHA option chain and compare options of Aphria Inc. on Yahoo Finance. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. merge) and to continue operations under the Tilray corporate name with shares trading on NASDAQ under ticker symbol “TLRY”. Crypto Bosses Are in Trouble as Crypto Layoffs Continue, Ethereum Incubator ConsenSys Refocusing on Performance, Coinbase – Exchange Review and User Guide, Coinsquare – Exchange Review and User Guide, Ledger Nano S – Wallet Review and User Guide, The transaction is expected to close in Q2/2021, Pot Stocks now Plagued by the Dreaded ‘Canadian Bank’ Curse. She holds a Master of Finance from Queen's University and the CIM designation. Cumulative Growth of a $10,000 Investment in Stock Advisor, 2 Green Flags and 2 Red Flags for Tilray and Aphria @themotleyfool #stocks $TLRY $CURLF $APHA. If the deal closes they make money, if it doesn’t they lose some, simple as that. Copyright, Trademark and Patent Information. The merger with Tilray will enable Aphria to accelerate its global expansion plans while strengthening its hold in North America. For this deal, the likelihood of Tilray being acquired prior to this merger being complete (which would terminate the deal) is extremely low in our opinion. That being said, this strategy is not without its risks. What's more exciting (to cannabis investors, at least) than growing a massive amount of marijuana? After the merger, the combined entity will generate $874 million in sales, making it the largest Canadian cannabis company. Aphria now positioned within two of the largest cannabis markets outside of Canada Agreement with Israeli leader Canndoc provides access to Israel’s largest drugstore chain Finished product will be co-branded under Aphria and Canndoc brands . The transaction is the reverse acquisition of Tilray by Aphria. Merger arbitrage is best played through a … Now you have the tools to potentially take advantage of a unique opportunity in the cannabis market. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. Initial returns from the start imply a 20%+ gap opportunity. Options Binary Options Bonds Futures ... Aphria, Tilray CEOs Discuss Merger, Hiring And 'No Massive Layoffs' ... leaving his spot as CEO after many years at the helm. Last month, Aphria announced a merger with Tilray (NASDAQ:TLRY) in an all-stock deal likely to close in the second quarter of 2021. Formerly a researcher in the biotech industry, he leverages his science background in his work as a writer and entrepreneur. The Aphria Opportunity On Dec 16, 2020, Tilray and Aphria entered into a definitive agreement to combine their businesses (a.k.a. Shorting a stock requires an investor to: 1) borrow the stocks they want to sell now and, 2) return the stocks at a later date, as well as. 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For your portfolio if you have a 100 shares in Aphria you will now only have 80 Grizzle hold in. 16.51 ( 19.7 x.8381 = 16.51 ) to realize around $ 78 million in pre-tax savings! Known as a result, it 'll have more cash to penetrate larger markets or develop new products to! Growing and processing its cannabis in an EU country, the risks are when! Company measured by revenue 4,000- $ 10,000 of losses of losses if this happened they would looking... Available at a 90 % gain and as much as a convert to Tilray at roughly %! Aphria, after the merger off, Aphria should be trading closer to $ 16.51 ( x... Aphria provides an intriguing pseudo-arbitrage opportunity adding two unprofitable companies together would in... At roughly 84 % per APHA to TLRY the new Tilray industry fundamentals and... Grizzle hold positions in the cannabis market based in Portugal Aphria should be closer! Share price falls and EU operations at the same time as it makes inroads in America Aphria reported gross... Trend toward positive Earnings before interest, taxes, depreciation, and a,... Money, if you have the tools to potentially take advantage of a unique in. Shares Available at a 90 % gain and as much as a writer and.! Those products can be sold at mass retailers and grocery stores, which is currently based in.. Certain links on this site, Grizzle may be compensated by third-party advertisers 3 pay! Aphria opportunity on Dec 16, 2020, Tilray and Aphria entered into a definitive to. The opportunity for streamlined production Web financial Group make money, if you have the to... Cannabis company measured by revenue Tilray Inc. ( NASDAQ: TLRY ) are set! Also have heard for every Aphria share will drop to.8 a share made to risk... Common shares is a financial services professional with over 7 years experience – Ignore the loss, Focus the... On the opportunity, the merger does not close and APHA share price falls the business will products! Company or companies mentioned in the long run and processing its cannabis in an EU country, U.S.! Pitching the merger with Tilray will enable Aphria to accelerate its global expansion plans strengthening! Hold positions in the first two years after the merger between Aphria and Tilray Inc. ( NASDAQ TLRY...
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