Photographer: Taylor Weidman / Bloomberg
Photographer: Taylor Weidman / Bloomberg
After that, a new giant in the fast-growing cannabis industry will be created Tilray Inc. and Aphria Inc. agreed to combine their activities.
The all-stock deal, which combines two of the industry’s best-known names, will create a new entity with equity of approximately C $ 4.8 billion ($ 3.8 billion), according to a statement and interviews with the CEOs from Tilray and Aphria. Annual sales of the combined businesses of C $ 874 million over 12 months exceed those of market leaders such as Curaleaf Holdings Inc. and Canopy Growth Corp.
The new company will trade under Tilray’s ticker on the Nasdaq, and Aphria shareholders will own 62% of Tilray’s shares under the terms of the transaction, which was characterized as a “reverse takeover of Tilray”. Aphria pays a 23% premium on Tilray’s December 15 closing price of $ 7.87.
“I realized that Aphria needed to expand out of Canada and the merger with Tilray was a great response as it is a US-based company with great international strength,” said Irwin Simon, Aphria’s Chief Executive Officer, who is Chairman and CEO of the combined group.
The deal confirms that cannabis, still seen by some as a marginal investment, is a rapidly evolving industry as more US states legalize the substance and open an increasing number of European countries until the medical use. The industry has seen a wave of deals as companies push for position amid rapidly changing rules. The combined assets of Tilray and Aphria are an early step toward that goal of creating a global cannabis operation.
Photographer: Galit Rodan / Bloomberg
Tilray CEO Brendan Kennedy becomes a board member of the combined company. Kennedy and Simon first met in 2018, but the financial courtship only started this year. It was carried out via text messages and phone calls due to the Covid-19 lockdown which made face-to-face meetings difficult.
The new company will sell cannabis products across Canada and be “well positioned to pursue growth opportunities,” such as medical marijuana in Germany. The companies said Tilray’s production facility in Portugal will allow tariff-free access to the European Union.
Simon and Kennedy said the deal puts them in a better position to take advantage of possible US federal legalization and is also based on the prospect of more legalization in Europe. Kennedy said Aphria’s two assets in Germany – a medical prescription distribution center and a culture facility – were particularly attractive.
“We felt this deal allowed us to win not only in Canada, but also in Europe, ”he said.
Beverages
A combination of beverage assets will also result. Aphria has has agreed to acquire the American craft beer company Sweetwater Brewing Company, which makes cannabis-infused beverages, and Tilray is a partner of Anheuser-Busch InBev. The combined US operations will focus on Sweetwater and Manitoba Harvest, which makes branded hemp and CBD products.
Simon said there is interest in using Tilray’s beverage plant in Canada to get Aphria to make drinks that contain THC, the active ingredient in cannabis.
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“The combined company is expected to have a strong, flexible balance sheet, cash balance and access to capital, giving it the opportunity to accelerate growth and deliver attractive returns for shareholders,” said a joint statement.
The firms say the partnership, which requires the approval of Tilray shareholders, will reduce annual pre-tax costs by approximately C $ 100 million within 24 months of completion. The agreement, which is expected to close in the second quarter of 2021, includes the right to match higher bids and a reciprocal termination fee of C $ 65 million under certain circumstances.
BNN Bloomberg Television previously reported that Aphria and Tilray were in advanced talks. Shares of both companies rallied during late trading on Tuesday, with Tilray jumping a whopping 26% to $ 9.94 and Aphria rising 23% to $ 9.96. Until Tuesday’s close, shares of Tilray are down 54% in 2020, while those of Aphria are up 56%.
‘Extended reach’
Bloomberg Intelligence analysts Ken Shea and Gopal Srinivasan said in a statement Research shows that the combination would “provide several benefits,” including “greater reach into international markets for medical cannabis.”
The European market will grow to $ 359 million by 2020, 25% more than in 2019, according to Brightfield Group, a cannabis consulting firm. However, the US remains the biggest prize. With its widespread recreational use, it is projected to represent 70% of the $ 93.8 billion global market by 2025, according to Euromonitor International.
Jefferies served as Aphria’s finance department counselor, and Cowen was from Tilray counselor.