Investors turned their backs on the cannabis stocks after the sector’s much-ballyhooed boom a couple of years ago did not materialize. However, interest is back with the improving chances of marijuana’s federal legalization in the United States. The writing is on the wall, given the burst of activities in recent months.
About 17 states legalized marijuana, and in five of them, legislators enacted the laws. Based on several public opinion polls, nearly 67%, or two-thirds, of Americans favour marijuana legalization. It could be a matter time before it gets approval at the federal level.
Aphria (TSX:APHA)(NASDAQ:APHA) is looking good in 2021. The weed stock has delivered a 93.18% year-to-date gain thus far. It outperforms the TSX (+10.83%) as well as the acknowledged industry leader Canopy Growth (+9.64). The share price today is $17. Had you invested even $5,000 on December 31, 2021, your money would be worth $9,659.09 today.
Impending business combination
The hottest industry topic is the mega-merger between Aphria and Tilray, although the latter will be the surviving entity. Still, it will produce an attractive international cannabis assets portfolio. The resulting company is likely to garner a larger market share in Canada’s recreational and medical industry.
The impending business combination highlights how the landscape in the cannabis space is rapidly changing or evolving. Many Canadian producers are waiting for federal legalization and eyeing the lucrative U.S. markets.
Aphria formally announced on April 15, 2021, that its shareholdings overwhelmingly approved the deal with Tilray. The voting took place during a special meeting of Aphria shareholders, and the result was 99.38% were in favour of the transaction.
Once the deal is complete, Irwin D. Simon, Aphria’s chairman and CEO, will hold the same positions in with the combined entity. He thanked Aphria shareholders for voting and approving the arrangement. Simon believes the merger will create a company with a strong financial profile, low-cost production, and market share-leading brands. Also, it will have a better distribution network and unique partnerships.
Meanwhile, Tilray will hold a special shareholder meeting on April 30, 2021, where its shareholders will vote on the business combination with Aphria. According to market analysts, investors should note the growth prospects if the Aphria-Tilray deal pushes through.
Regarding market share, Aphria remains the number one licensed producer in Alberta and Ontario based on Headstart data from December 2020 to February 2021. It ranks second in Quebec. The Q3 fiscal 2021 (quarter ended February 28, 2021) result was the eighth consecutive quarter that Aphria reported positive adjusted EBITDA from the cannabis business.
Furthermore, future funding won’t be a problem. Aphria obtained US$120 million financing with Bank of Montreal, US$100 million long-term debt, and US$20 million revolving facilities.
Support will not collapse
Aphria has a market capitalization of $5.38 billion and is known as the leading global cannabis-lifestyle consumer packaged goods company. The current share price is a good entry point, as it has declined 38.5% since rising to $27.65 on March 15, 2021. Market analysts forecast the stock to climb 70.5% to $29 in the next 12 months.
Many observers think it’s unlikely that the growing support for marijuana legalization in the U.S. will suddenly collapse. They add it’s a foregone conclusion.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.
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