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Aphria and Tilray to Merge In $4 Billion All-Stock Pot Deal

Aphria and Tilray agree to join forces, creating the world’s biggest marijuana production and distribution company with a combined value of nearly $4 billion.

Aphria  (APHA) - Get Aphria Inc Report and Tilray  (TLRY) - Get Tilray Brands, Inc. Report, two giants in the cannabis industry, on Wednesday revealed plans to join forces in an all-stock deal that will create the world’s biggest marijuana production and distribution company.

Under terms of the agreement, Aphria shareholders will receive 0.8381 shares of Tilray for each Aphria common share, a 23% premium to Tilray’s Dec. 15 closing price of $7.87. The all-stock deal that will create a new powerhouse in the pot industry, with an equity value of about C$4.8 billion ($3.8 billion).

The combined entity’s 12-month annual sales of C$874 million are larger than current industry leaders such as Curaleaf Holdings and Canopy Growth  (CGC) - Get Canopy Growth Corporation Report, the companies said in a statement.

The new company will trade under Tilray’s ticker on the Nasdaq, and Aphria shareholders will own 62% of Tilray’s stock under the terms of the transaction, which was characterized as a “reverse acquisition of Tilray,” the companies said.

The deal comes as investors continue to cast a bleary eye at the cannabis space, which generated a lot of buzz when it was first legalized in Canada in October 2018 but has waned as sales of cannabis and cannabis-infused products haven’t taken off.

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At the same time, as more U.S. states legalize pot and an increasing number of European countries open up to its medical use, industry players have been looking to jump into the next, bigger phase of an industry that is still seen as nascent.

For Aphria and Tilray, the deal positions the companies to take advantage of potential U.S. federal legalization as well as the prospect of more legalization in Europe. Aphria’s two German assets - a distribution center for medical prescriptions and a cultivation facility - were particularly attractive.

The combined company also will be a leader in cannabis-infused drinks. Aphria has agreed to acquire U.S. craft beer company Sweetwater Brewing, which makes cannabis-infused beverages, and Tilray is a partner of Anheuser-Busch InBev.

The combined U.S. operations will focus on Sweetwater and Manitoba Harvest, which makes branded hemp and CBD products.

“The combined company is expected to have a strong, flexible balance sheet, cash balance and access to capital giving it the ability to accelerate growth and deliver attractive returns for stockholders,” the companies said.

Shares of both companies traded higher on Wednesday, with Tilray stock up 22.74% at $9.66 and Aphria up 2.75% to $8.34. Through Tuesday’s close, Tilray shares have fallen 54% in 2020, while Aphria’s have risen 56%.