What the Aphria & Tilray Merger Means for Marijuana Stocks

Aphria Stock, Tilray Stock, & the Canadian Marijuana Market

It was a long time coming, but it appears that good times have returned at last to the formerly beleaguered marijuana market. In 2020, marijuana stocks were at times struggling (and at times thriving), but with 2021’s arrival, it seems that pot stocks are on a consistent rise once more.

Two companies that should be on investors’ radar—Aphria Inc (NASDAQ:APHA) and Tilray Inc (NASDAQ:TLRY)—have already more than doubled in value since 2021 began. The question now is: Can these two Canadian marijuana stocks continue to climb?

The short answer is yes. But if I’m being perfectly honest, although APHA stock and TLRY stock are likely to see more growth due to their blockbuster merger, frankly, there appears to be far more room for gains among stocks on the periphery.

Before I unpack where the real gains are to be had in the marijuana market right now, however, I’ll give a brief overview of the market in 2021.

The major news in the U.S. is that a new sheriff is in town: President Joe Biden. The changing of the guard is bound to have a profound impact on pot stocks—both in the U.S. and in Canada.

Moreover, a massive shift took place on January 6, when the Democratic Party won control of the Senate, with the results of the Georgia races coming in. That news on its own was enough to jump-start interest in the U.S. marijuana industry. (Source: “With Democrats in Control, Investors Are High on Cannabis,” Bloomberg, January 22, 2021.)

And that makes perfect sense. After all, the Democratic Party has never been more pro-marijuana than it is today. Further to that point, while Biden is certainly among the old guard when it comes to his prohibition leanings regarding pot, Vice President Kamala Harris (accompanied by much of the young, up-and-coming political roster of the Democrats) has gone on record as supporting marijuana legalization.

Whether Harris will be able—or even want—to convince Biden to evolve on cannabis legalization remains to be seen. Furthermore, while a Biden-led push for marijuana legalization would be a boon for the industry, it is by no means a necessity.

Between the potential passage of pro-marijuana legislation in the House and Senate (unlikely, but possible) and the overall positive mood surrounding the pot industry now that Biden is in charge, we’re left with a very positive environment for marijuana stocks.

And the good news is that this rising tide does indeed lift all boats.

With the renewed excitement about marijuana market growth in the U.S., we’re seeing investors similarly look North to find some pot profit opportunities.

After all, few companies are going to be as well prepared to leverage U.S. marijuana legalization into profit as are the current dominant companies in the industry: Canadian pot companies.

And that brings me back to Aphria stock and Tilray stock. In December, the two companies announced that they were merging, and since then, their share prices have skyrocketed.

Chart courtesy of StockCharts.com

In the last three months alone, TLRY stock and APHA stock have seen over 160% growth. And in January, both pot stocks were able to effectively double.

Chart courtesy of StockCharts.com

There’s obviously excitement surrounding the Tilray/Aphria merger. There hasn’t been a marijuana merger of this significance in years.

When all is said and done, the new joint company is set to be the largest marijuana company in the world, based on sales. (Source: “Canadian Pot Producers Aphria, Tilray Unveil Merger Plan to Create Global Leader,” CBC, December 16, 2020.)

I’ve long said that a buy-and-hold strategy for marijuana stocks is a good one, precisely due to the nascent industry’s penchant for mergers.

I’ve also long highlighted APHA stock as a solid stock—while being a little more skeptical when it comes to TLRY stock. And for good reason: just look at the following chart.

Chart courtesy of StockCharts.com

When Tilray stock went public on the Nasdaq, I said that this was great, even for other pot stocks.

Tilray stock, however, grew way too fast to be considered stable. What took place next was a long, slow, painful decline, in which pretty much anyone who invested after the early days of its Nasdaq-listed life were treated to fits and starts as it trended downward for years.

With the new merger, TLRY stock is only now getting back to its initial public offering (IPO) price.

What I’m saying then is that I don’t have a lot of faith in Tilray Inc. The company simply has never demonstrated strong revenue numbers or growth strategies that would make it an attractive target.

APHA stock has proven itself to be a strong stock, but the issue here is that it’s likely to become overvalued as it merges with Tilray.

So then, how can investors profit? Simple: look at other Canadian marijuana stocks.

Now that the Aphria/Tilray merger has been announced, we can expect other top-tier Canadian pot stocks, like Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (NYSE:ACB), to begin to see renewed interest.

And when all the hype begins to die down over the Tilray/Aphria merger, companies like HEXO Corp (NYSE:HEXO) and Organigram Holdings Inc (NASDAQ:OGI) will likely garner attention as potential acquisition targets for a merger, making their stocks very appealing to investors.

Analyst Take

The reality, dear reader, is that the window for massive gains from Tilray stock and Aphria stock has likely passed.

The good news is that their merger has once again sparked interest in marijuana stocks in general. Investors have been reminded just how fast these stocks can rise. As such, we can expect to see a wave of new investments flood into the Canadian marijuana market.

Investing in the right stock before the crowd arrives could net huge gains. Therefore, keep an eye on the choicest Canadian pot stocks, which I have mentioned above.