1. Comment
  2. Comment
May 28, 2021

Tilray-Aphria Merger forms largest cannabis company in the world but needs US federal legalization

By MarketLine

The merger between Tilray and Aphria has created the world’s largest cannabis company by pro-forma revenue in which Aphria will operate under Tilray.

The cannabis industry is slowly legitimizing, with 18 states in the US that have established a market or are in the process of opening their doors for the sale of recreational adult-use cannabis.

Though some states are still fighting against legalization, such as South Dakota whose electorate voted in favour of the Marijuana Legalization Initiative, but state judges blocked passing the amendment with claims of it being unconstitutional.

Merger makes sense for both parties

It is believed that the deal could double the revenue of the company as it stands together now by 2026 from CAD4.6bn ($3.4bn) to CAD8.6bn ($6.4bn). In terms of savings following the merger, it is thought that together there will be pre-tax cost saving synergies of  CAD100m ($74.5m) within the first 18 months and of which will continue annually.

Savings to the balance books and working towards a positive financial outlook for the newly formed Tilray is imperative as Tilray has yet to generate a profit since its starting operations in 2014. The company witnessed a net loss of $271.1m in 2020, down from the $321.2m in 2019 but up from the $67.7m and $7.8m losses in 2018 and 2017.

With Tilray being such an early entrant to the industry, losses at this stage can be forgiven in the grand scheme of things, but it will need federal legalization in the US to happen in order to move forward.

Legalization of cannabis in Canada in 2018 was a huge milestone for the company in which it resides, though it needs access to more people to become profitable and be a dominant player in the industry.

US tax revenue raised from cannabis supports case for Tilray

Since 2014 when the states of Colorado and Washington began legalizing cannabis, there has been a CAGR of 84% in tax revenue raised from the sale of cannabis. In the first year, revenue was just $68.5m but as of 2020, almost $2.7bn was raised which over the years has taken the total amount raised in tax to $7.9bn.

The amount of financial gain to the US economy won’t go unnoticed and after the election of Democratic Party leader Joe Biden, who has previously said he favours the decriminalization of cannabis; the industry in the US is in a much more favourable position than it was under Republican Donald Trump.

The US is said to be set to spend $6tn in stimulus packages as a result of COVID-19. With some states already legalizing and pushing the agenda, it won’t be long before finding ways to pay back that stimulus reaches the decision for full legalization. If states begin having budgets cut, then local municipal governments will rely on further taxation to help support its populations.