Business

Canadian pot producers Aphria, Tilray unveil merger plan to create global leader

Aphria Inc. of Leamington, Ont., and Nanaimo, B.C.-based Tilray Inc. announced early Wednesday they are merging in an all-stock deal that will create the world's top pot producer based on sales.

Current CEO of Aphria to lead merged company

Aphria's variant of the popular Sour Kush strain is pictured. Canadian cannabis companies Aphria and Tilray say they are merging. (Evan Mitsui/CBC)

A pair of Canadian cannabis companies say they're joining up to form the largest producer in the world based on sales.

Aphria Inc. of Leamington, Ont., and Nanaimo, B.C.-based Tilray Inc. announced early Wednesday they are merging in an all-stock deal. 

On Nasdaq, Tilray shares closed Wednesday up more than 18.5 per cent at $9.33 US. While they were initially up earlier in the day, Aphria shares finished in the red — down seven cents at $8.05 US on Nasdaq and off by one cent at $10.31 on the TSX.

Under the terms of the deal, Aphria shareholders will get 0.8381 shares of Tilray for each Aphria common share they hold. Once the deal concludes, Aphria shareholders will own approximately 62 per cent of the outstanding Tilray shares, resulting in a reverse acquisition of Tilray.

The merged company will operate under the Tilray name, while its shares will trade on Nasdaq under the TLRY ticker symbol. Aphria will become a unit of Tilray.

Irwin Simon, Aphria's current chair and chief executive officer, will take on those same roles in the merged company. Current Aphria directors will occupy seven of the nine seats on the new company's board of directors, with Tilray getting the other two.

The companies said that based on the past 12 months, their combined revenue would have been $874 million. They said they would have had a 17 per cent market share in the Canadian cannabis market — the largest of any licensed producer.

Aphria and Tilray said they expect their deal will result in about $100 million in cost savings in key areas, including cultivation and production, cannabis and product purchasing, sales and marketing and corporate expenses.

They said the merger will allow Aphria's Leamington operations to provide additional volume for Tilray's brands and to replace the need for Tilray to buy wholesale cannabis from other licensed producers. They also said Tilray's facility in London, Ont., will provide Aphria with excess capacity to boost output, including their branded edibles and beverages.

Aphria and Tilray also said they see their union as a way to get more access to the U.S. market. Last month, Aphria said it was buying SweetWater Brewing, an Atlanta-based craft brewer with distribution in 27 states, for $300 million US.

"When U.S. regulations allow, the combined company expects to be well positioned to compete in the U.S. cannabis market given its existing strong brands and distribution system in addition to its track record of growth in consumer-packaged goods and cannabis," Aphria and Tilray said.

Matt Bottomley, an equity researcher at Canaccord Genuity, said the deal helps the companies get into many more markets outside of Canada.

"I think finding your dance partner now to do that is important as the federal landscape in the U.S. is changing very quickly," he told CBC News.

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