ETFs To Buy As Tilray-Aphria Merger Creates Cannabis Giant

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Cannabis stocks have been already soaring of late on legalization hopes. The latest merger announcement between Tilray (TLRY - Free Report) and Aphria (APHA - Free Report) has made the bullish case for these stocks even stronger. The all-stock deal is valued at about $3.9 billion.  

Per the terms of the agreement, Aphria shareholders will receive 0.8381 shares of Tilray for each Aphria common share, a 23% premium to Tilray’s closing price as of Dec 15. Upon the closure of the transaction, Aphria will own about 62% of the combined company. The merged company will continue to trade under the name Tilray and will be led by Aphria’s CEO Irwin Simon, who will serve as both CEO and chairman.

The combination will create the world's largest cannabis company in terms of annual revenues, which is expected to be worth C$874 ($685) million. As such, the combined entity will edge out current industry leaders such as Curaleaf Holdings and Canopy Growth (CGC - Free Report).

The deal, which is pending regulatory approvals, is expected to close in the second quarter of 2021. It is expected to deliver C$100 million of annual pre-tax cost synergies within 24 months of the completion of the transaction.

The merger could spur a wave of cannabis consolidation and is happening at a time when the marijuana industry is looking hot with wave of legalization on the way. The upcoming administration of Joe Biden will speed up the legalization of marijuana at the federal level while the U.S. House of Representatives passed a bill — the MORE Act — that would remove marijuana from the list of controlled substances. The bill, however, faces little chance of passing at the Senate.

Market Impact

Following the news, shares of Tilray jumped more than 18%. The stock crushed its average volume as nearly 94.9 million shares moved hands compared with 17.3 million, on average. Meanwhile, shares of APHA lost nearly 1%.

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