The merger between the two Canadian pot players Tilray and Aphria was the highlight of the industry during the pandemic. Aphria was already positioned as a strong cannabis company, and traders expected that the merger with Tilray would help create a cannabis powerhouse. As a merger this large normally takes time to be fully integrated, but Tilray has already been on the right track. Since the finalization of the merger in May of 2021, the combined quarterly results of the two companies have been impressive.
While many Canadian companies are having a hard time, Tilray may be the only Canadian cannabis stock to own this year. Let’s take a look at why.
The merger with Aphria has proved beneficial
Prior to the merger, Aphria was already a strong profitable business. Tilray gave it access to more markets. Though it might take a while for Tilray to reap the full benefits of the merger, the business had already realized around $70 million in cost synergies by January 10. Cost synergies are the reductions in cost that a business achieves from a merger by capitalizing on each other’s efficiencies. Those efficiencies include higher-class production facilities, growth strategies, competitive innovative products, the scale of operations, and much more to produce higher sales.
Management thinks Tilray will easily cross its starting target of $80 million faster than scheduled and could also produce an extra $20 million in fiscal 2023.
The merger with Tilray has extended the Aphria’s horizons around the globe. Its cultivation facilities in Germany and Portugal will help it to dig deeper within the European markets.
Note that some of these cost synergies targets don’t include revenue synergies. With better access to the global markets, the business might be able to continue producing higher revenues.
The only Canadian cannabis stock worth considering now
It would be a while before Canadian pot stocks rebound. Unless they have growth revenue at a drastic rate, it would be difficult to achieve profitability any time in 2022. Moreover, most of them are mainly focusing on expansion within the U.S. market, which might burden their balance sheets. On the other hand, Tilray has been playing it smart. It has become profitable and strengthened its main operations before entering into the United States markets.
The business is financially well-positioned to take every advantage of the opportunities in the quickly evolving cannabis markets in the U.S. In Dec., it made another smart acquisition of a Colorado-based alcohol company called Breckenridge Distillery. Speaking about acquisitions within the United States market, the CEO Irwin Simon says, “These important, diversified revenue streams can be the key to delivering on our main goal of leadership within the industry with $4 billion in revenue stream by the end of 2024.”
Marijuana is still a very risky sector, so my advice to those wanting to invest would be to begin with a smaller investment in Tilray with a mixture of other growth stocks and hold onto them for the long haul for a better chance of earning fruitful returns.
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