Canadian pot producer Aphria Inc said on Wednesday it will merge with rival Tilray Inc, creating the world’s largest cannabis producer by sales and giving it a foothold in the fast-growing U.S. market.
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Like several of the North American producers to emerge in recent years, Aphria and Tilray have struggled to fulfill the expectations created by Canada’s move to legalize cannabis use fully last year.
Joe Biden’s win in the U.S. presidential election and state level reforms, however, have renewed hopes that the U.S. market is finally ready to open up, boosting deal-making in the sector.
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The reverse merger with Tilray will see Aphria shareholders get 0.8381 shares of Tilray for each Aphria share they own, while owning 62 per cent of the combined company, which on a pro forma basis had revenue of $874 million in the last twelve months.
After the merger, Tilray will continue to trade on Nasdaq with Aphria becoming a private unit, and Aphria CEO Irwin Simon leading the combined company.
U.S.-listed shares of Tilray rose 30.1 per cent premarket, while Aphria rose 8.6 per cent.
Rivals Aurora Cannabis and Canopy Growth have also made deals to establish supply routes and a path for full U.S. entry if and when Federal rules allow.
Aphria itself bought U.S. craft brewer SweetWater Brewing for $300 million last month, giving it a possible future distribution point south of the border.
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The Tilray deal will create $100 million of annual cost savings within a year from completion, the companies said, and Tilray will no longer need to purchase wholesale cannabis from other producers.
The combined company will also be able to increase output of branded edibles and beverages, which have been in heavy demand during lockdowns.