News on Wednesday that two of the world’s largest publicly traded cannabis companies, Tilray Inc. (NASDAQ:TLRY) and Aphria Inc. (TSX:APHA)(NYSE:APHA) are set to join forces to make a cannabis mega-giant has taken the market by storm. The share prices of both firms surged after the announcement, with investors largely cheering consolidation in this sector, one which remains highly fragmented.
The idea that larger companies can perform better over the long term is one that has created an acquisition-heavy environment, and with share prices depressed from 2018 highs, investors have cheered recent acquisitions in this space, viewing them as more prudent today than in years past.
Aphria shareholders are set to own a majority stake in the combined entity, with the company continuing to operate under the Tilray name, listed in the U.S. The company is likely to focus primarily on U.S. growth, with the majority of the growth investors require from these nascent companies coming south of the border.
The combined entity is expected to be better able to accomplish these long-term goals, while focusing on growing margins. The companies announced a joint plan to reduce approximately $100 million of expenses, generating cost savings to boost the company’s bottom line.
These job cuts come at a time when many pot producers are scrambling to show a profit, given the heavy expenditure most companies made being proactive prior to legalization. With demand not materializing, companies like Aphria and Tilray have been aggressively looking to right-size, and the combined entity will likely have an easier path to doing so, making this an interesting stock to keep on your watch list now.
Invest wisely, my friends.
