Aphria Inc on Track to Become Largest Pot Stock in World

This Pot Stock Is Worth Thinking About

Aphria Inc (NASDAQ:APHA) is one of the bigger players in the legal cannabis industry.

Headquartered in Leamington, ON, Canada, the company grows, processes, and sells medical and recreational cannabis, cannabis-derived extracts, and other derivative cannabis products.

Aphria Inc started in Canada in 2013 and expanded globally. Moreover, thanks to its acquisition of SW Brewing Company LLC last year, Aphria also produces and sells alcoholic beverages in the U.S.

And because Aphria stock trades on the Nasdaq—rather than over the counter in the U.S. like many other pot stocks—it has received a lot of investor attention. In Canada, the company is listed on the Toronto Stock Exchange. On both exchanges, Aphria’s ticker symbol is “APHA.”

At the time of this writing, Aphria Inc has a market capitalization of more than $4.0 billion.

Of course, being a big player in the cannabis industry doesn’t mean APHA stock moves like a blue-chip stock. Despite the company’s established position in its operating market, Aphria stock is still very volatile—just like other pot stocks.

Aphria Inc (NASDAQ:APHA) Stock Chart

Chart courtesy of StockCharts.com

These days, APHA stock isn’t just about Aphria Inc. On December 16, 2020, the company announced that it would be merging with Tilray Inc (NASDAQ:TLRY) to create a cannabis giant bigger than any other player in the industry. (Source: “Aphria and Tilray Combine to Create Largest Global Cannabis Company,” Aphria Inc, December 16, 2020.)

Under the arrangement, Tilray will acquire all of the issued and outstanding Aphria shares. Aphria shareholders will receive 0.8381 shares of Tilray stock for each share of Aphria stock they hold. Meanwhile, Tilray shareholders will continue to hold their TLRY shares, with no adjustment to their holdings.

The combined company will use the Tilray name. However, the transaction implies that Aphria will own about 62% of the combined company.

The deal could change the competitive landscape in the cannabis industry, simply because of the size of the two companies.

On a pro forma basis for the previous 12 months reported by each company (as of the merger announcement), Tilray and Aphria generated total revenue of CA$874.0 million (US$685.0 million). At the time, that would have made the combined company the biggest legal cannabis company in the world in terms of revenue.

On April 15, Aphria announced that its shareholders approved the merger with Tilray. Of all the Aphria shares voted, 99.4% were in favor of the arrangement. (Source: “Aphria Inc. Shareholders Overwhelmingly Approve Proposed Arrangement With Tilray, Inc.” Aphria Inc, April 15, 2021.)

Tilray was supposed to hold a special shareholder meeting to vote on the merger on April 16, but the company has rescheduled the meeting for April 30. Tilray said this would allow TLRY shareholders additional time to vote on the deal. (Source: “Special Meeting of Tilray, Inc. Stockholders Adjourned to April 30, 2021 at 11:00 a.m. Eastern Time,” Tilray Inc, April 15, 2021.)

Aphria Inc’s Latest Financials

Aphria recently reported its earnings for the third quarter of its fiscal 2021, which ended February 28.

For the quarter, Aphria generated CA$153.6 million of net revenue, representing a 6.4% increase year-over-year but a 4.3% decline quarter-over-quarter. (Source: “Aphria Inc. Announces Third Quarter Fiscal Year 2021 Results,” Aphria Inc, April 12, 2021.)

The company’s gross revenue from recreational cannabis totaled CA$59.6 million in its third fiscal quarter. That marked a 33.4% increase from a year earlier but a 17.3% decline sequentially.

Keep in mind that Aphria’s revenue in the reporting quarter was impacted by economic lockdowns in major Canadian provinces. For instance, Ontario—the most populous province and the biggest cannabis market in Canada—was in a lockdown for nearly the entire reporting period.

Notably, Aphria Inc maintained its status as the No. 1 licensed cannabis producer in Ontario and Alberta in terms of sales to provincial boards. At the same time, the company gained market share in Quebec and is now the second-largest licensed producer by sales to Quebec’s provincial board.

Aphria also generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$12.7 million in the third fiscal quarter. That more than doubled the CA$5.7 million generated in the year-ago period and represented a CA$100,000 improvement sequentially.

Analyst Take

Pot stocks are some of the most volatile tickers in the entire market. Even after the merger of Aphria Inc and Tilray Inc goes through, the enormous size of the combined company doesn’t necessarily mean it’s going to be less volatile.

That said, the outlook for the cannabis industry remains as bright as ever. And this major deal could be an opportunity for investors who are comfortable with making high-risk/high-reward plays.