Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA) to Form Huge New Pot Opportunity

Following marijuana producer stocks has been something of a depressing exercise in the last few months. There hasn't been a superabundance of good news of late, and even the good news has been sort of underwhelming. However, there's one item that should prove to be a sea change for the field, and demonstrate that marijuana is a maturing market. Earlier today, Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA) announced a major new deal that would shake up the legal marijuana market as we know it today.

That's a Lot of Weed, Man

The combined deal, said to be valued at nearly $5 billion total, will combine the two companies together and form the world's largest marijuana production outlet on Earth. The two companies will come together under the Tilray name, with Aphria shareholders to receive 0.8381 shares of Tilray stock for every one of Aphria currently held. That represents a premium of around 23%, as compared to the Tilray closing share price of $7.87 posted December 15. Aphria shareholders will ultimately own 62% of Tilray's stock, leading to some calling it a “reverse acquisition.”

The move will also create one of the biggest pot sellers around. As it turns out, combining Tilray and Aphria's 12-month sales—which work out to $874 million Canadian, at last report (about $685.46 million US as of this writing)—outmasses not only those of Curaleaf Holdings, but also those of Canopy Growth (NYSE:CGC).

The Analysts are Comparatively Mellow

As it turns out, based on our latest research of the two companies, the deal in question is almost precisely in line with what should have been done. Of the two, Tilray was the company with the weaker position going forward, which should make it a good addition to Aphria's operations.

Tilray currently holds a “hold” consensus rating, with three “sell” ratings, nine “hold” ratings and one “buy” rating making up the mix. This rating has been in decline for the last six months, where the company once held two “sell” ratings, 12 “hold” and two “buy” ratings. The price target has also been in decline; while it's currently unchanged from last month's assessment of $10.95, it's also down substantially from six months ago rating of $16.21.

Meanwhile, Aphria has a “buy” rating to its credit, and one that's been holding steady for the last three months. For the last three months, in fact, it's had the same consensus: eight “buy” ratings. This is a change from six months ago, where the company had two “hold” ratings and six “buy” ratings. A look at the longer-range past suggests where the change came from as Stifel Nicolaus upgraded from “hold” to “buy” in mid-July 2020 and Eight Capital upgraded to “buy” back in mid-April 2020. Aphria's price target, meanwhile, has been on the rise for several months. Though it's been flat in the last month, holding at $9.18, it's up from three months ago, where it was $8.83. That in turn was up from six months ago, where it was at $8.21.

One Powerhouse in a Strange Market

Thus, the end result becomes one that makes a lot of sense; the higher-rated company is picking up its lesser-rated brother and putting the two to work under the same banner. Here, several advantages will hopefully kick in for Aphria. Among these is access to Tilray's growing facilities and capability to help enhance its own inventories, as well as Tilray's list of customers, which will soon be Aphria customers. It's hopeful that the overlap in this particular Venn diagram isn't too substantial, but that point was likely worked out before the deal went public.

Now, Aphria will be able to access a wider customer base, and improve its own sales almost immediately by counting Tilray's sales under its own banner. That in turn should make it a more attractive prospect to investors; those who pick up shares of either now will soon have a piece of a pot operation larger than even Canopy Growth.

The problem remains as it's remained all along: there's not so much demand for marijuana. With a very tricky overall legal picture to consider, sales can be difficult to produce. With sales forbidden in some places, restricted to the point of forbidden in others, or just made difficult in still others beyond that, the end result is an unnaturally crimped market with limited reach.

Still, the combined force of Aphria and Tilray should prove to be a powerful one, and since both already have sales records to speak of, the end result should be a sound one for anyone who thinks marijuana is an investment just waiting for a chance to take off.