Home Stock Why is this cannabis giant betting on Europe to build a warehouse...

Why is this cannabis giant betting on Europe to build a warehouse of war ahead of U.S. legalization campaign


The company’s chairman and CEO told MarketWatch ahead of the group’s earnings results on Monday.

The Europe’s highly profitable medical cannabis deals represent important perspectives for Aphria’s
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Irwin Simon said on the way to conquer the US, strengthening the company’s balance sheet and placing it firmly with European regulators.

Like in the US, legal recreational cannabis is still being rolled out in Europe, where a combined population of more than 500 million in the UK and the European Union makes it a lucrative proposition.

Aphria is about to complete its fusion with Tilray
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This quarter created the world’s largest cannabis company by revenue. The combined company will push ahead to the UK, Sweden, Poland, Luxembourg and China, with agreement discussions taking place in India, Aphria said.

Expansion in Europe will take place as early as a few weeks, when Tilray will start distributing in Luxembourg, with Aphria and Tilray businesses pushing into Poland in the third quarter of this year.

In China, the conglomerate will have an agreement to distribute health care products that contain CBD – a non-psychoactive chemical in cannabis used to treat pain and anxiety, among other conditions. other status. A similar deal is under development in India.

Aphria is a key player in the global cannabis industry with a market capitalization of $ 5.1 billion. This conglomerate is preferred by analysts for being the first Canadian cannabis company to report net profits. In December, Aphria agreed to merge with smaller rival Tilray, which has a market cap of $ 3.5 billion, through a reverse takeover.

Also read: Canopy Growth is not buying Acreage Holdings, but rather buying options for Acreage Holdings

In return for sharing a relatively strong balance sheet with Tilray, Aphria will inherit the company’s presence in 10 European countries, including UK, Germany, France, Spain and Portugal, where The company has a farming facility. Added to Aphria’s burgeoning German location and Europe’s drug distribution business, the combined team will be the region’s most dominant cannabis player.

Since recreational potions are still illegal across Europe and Asia, cannabis companies can sell their products on regulated medical markets at a much higher price than the legal entertainment market. in the US and Canada. This increases margins while the fledgling industry faces margins barriers, including price pressures from competing firms and the old black market.

Countries in Europe have legalized cannabis for medical purposes and the drug is nominally identified for recreational use in countries including Italy, Austria, Portugal and the Netherlands. . Many people, including Simon, take the legalization of recreational weeds a matter of course in most areas.

“In many ways, Europe is better,” Simon said. “There are so many lessons to pull out of Europe that we ultimately bring to the United States when legalization happens here.”

But for now, the drug is still federal illegal in the United States, although individual states, including most recently New York, have legalized it. The national ban has largely kept institutional money out of the field and is a barrier to interstate business and trade in goods across the US-Canada border. It also increases stock market volatility with a high share of shares held by retail investors.

Optimization of federalism has grown with the Biden administration, but it is still hypothetical. National denomination would be a key factor for a US financial deal starting in earnest, but analysts see Senate passing the Safe Banking Act as a stepping stone. less. The act will allow the cannabis industry to engage with US financial services and insurance groups.

More: Tilray shares soar following a reverse merger with Aphria, to create the largest cannabis company globally

While some competitors of Aphria have embedded their foot in M&A in the US through Conditional takeover of changes to US lawSimon wants to keep Aphria on the sidelines for the moment.

Kristoffer Inton, an analyst at Morningstar, told MarketWatch that U.S. assets with positive legalization capabilities are very attractive to private equity, alcohol and tobacco as well as their cannabis groups. Canada. Inton says these assets are very expensive and corporations like Aphria have to be careful not to overpay in the current optimistic climate or the expected M&A fever that is expected to accompany legalization. “How would you turn optimism into realistic visibility without paying too much for the asset when everyone else wants?” Inton said.

The most ambitious play that Aphria performed in the US was the acquisition of craft brewer SweetWater last December, giving the company a reliable sales channel from alcohol and exposure to laced beverages. sa. The drug’s consumer derivatives are seen by many as the future of the industry, and Tilray has a partnership with beverage giant AB InBev.
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Finally, analysts point to the inflated valuations in the cannabis sector stemming from market valuations in some degree of US legalization. For all the discussion about expanding into Europe, Simon realized that the US was very important to the future of equities.

His game plan to hit the US market is largely based on building on successes in Canada and Europe. Simon’s ambition is to increase the combined market share of Aphria and Tilray in Canada from around 20% to 30% while maintaining a positive cash flow. He also wants to continue to be the largest medical cannabis company in Europe, including finding a strong strategic partner in the region and leveraging its relationships with regulators to secure licenses. in the markets legalized recreational vases.

Simon says, if Simon succeeds, the company will build a healthy warehouse of warfare for the upcoming battle in America. maybe not enough, and Simon knew it could be a costly fight.

“I will find a way to gain rights [multistate operator] Once I know what the market will legalize or how the market will legalize in the US, ”said Irwin. “I’d rather pay a little more when I can go into a business where truth is known.”

Shareholders of Aphria will receive 0.8381 Tilray shares for each Aphria share they own as the companies merge, awaiting shareholder approval in the coming days. The group will operate under the name of Tilray with the stock trading through Tilray’s listing on the Nasdaq. Simon will become the president and CEO of the combined company, of which the shareholders of Aphria will own 62%.

Aphria shares have risen more than 130% so far, while Tilray’s has risen more than 140% since the start of the year.

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