Aphria And Tilray Sparked An M&A Super Cycle And This Is What Comes Next

After Aphria Inc. (APHA.TO) (APHA) and Tilray Inc. (TLRY) announced a merger agreement in late 2020, there has been a substantial increase in the amount of merger and acquisition (M&A) activity in the Canadian cannabis sector.

Yesterday, Canopy Growth Corporation (WEED.TO) (CGC) announced a definitive agreement to acquire Canadian cannabis producer The Supreme Cannabis Company, Inc. (TSX: FIRE) (OTCQX: SPRWF) in a transaction that is valued at approx. $435 million on a fully diluted basis.

Going forward, we expect to see Canopy Growth acquire additional assets and highlighted this possibility in an article after it entered into a credit agreement for a US$750 million (USD) senior secured term loan in late March.

The combination of Aphria and Tilray seems to have lit a fire under Canopy Growth and additional Canadian cannabis producers. Canopy Growth’s acquisition comes a few days after Organigram Holdings Inc. (OGI.TO) (OGI) reported an agreement to acquire a cannabis edible brand. We expect Organigram to play a big role in future M&A transactions after it received a C$221 million strategic investment from a wholly-owned subsidiary of British American Tobacco (LSE: BATS) (NYSE:BTI).

Once the merger between Aphria and Tilray is complete, the combined company will be the world’s largest cannabis business and is expected to have a leading position on the international cannabis vertical. From the European Union (EU) to the United States (US), the combined company will have leverage to several strategic emerging international markets, and we are bullish on this aspect of the story.

Canopy Growth’s acquisition of Supreme Cannabis is expected to strengthen its leverage to Canada’s recreational market but will have less of an impact on the international cannabis opportunity.

Through an investment and partnership with Acreage Holdings Inc. (ACRG-AU.CN) (ACRHF), Canopy Growth has attractive leverage to the US market and will be able to capitalize on it when legislation permits.

Several Canadian and us cannabis companies have already acquired assets that are highly levered to the EU. We would not be surprised if Canopy Growth acquired assets that provide additional exposure to the EU and will monitor how the story advances from here.

Although Canada’s cannabis industry has matured, the global opportunity is still in the early innings and we expect the industry to record explosive growth over the next decade.

Going forward, we will be closely following how these acquisitions advance, please send an email to support@technical420.com with the subject “Canadian M&A” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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