So far this year, Tilray Inc. (TLRY) has been one of the most highly talked about Canadian cannabis companies and we attribute the spike in interest to the pending mega-merger with Aphria Inc. (APHA.TO) (APHA).
Following the merger announcement, Tilray surged to the upside as the market started to recognize the potential growth that is associated with the combined company. At one point this year, Tilray’s stock was up more than 500% since January 1st and this was a trend that we have been carefully following.
After Tilray and Aphria announced the planned business combination, Wall Street got behind the opportunity and several broker-dealers upgraded both Canadian cannabis companies. Although the series of upgrades served as a catalyst for both companies, the stocks were trading well above the price target that was issued on both operators.
During the last month, Tilray was hit with a double downgrade after leading broker-dealers became cautious with the valuation. The downgrades put considerable pressure on the Canadian cannabis company and the stock has fallen more than 50% from its February highs.
Today, Stifel raised its price target on Tilray to $21 from $9.20. Although the shares are trading above the broker-dealer’s price target, we believe the upgrade is a positive development for the business.
Another positive development for the combined company that was reported today is related to Aphria’s exposure to the European Union (EU) cannabis market. Aphria is highly levered to the German cannabis market and has one of the largest cannabis distribution platforms in the EU. We expect the combined companies to find substantial synergies between Tilray’s state-of-the-art EU GMP facility in Portugal and Aphria’s international business and consider this to be an important pillar of our long-term thesis.
Currently, Tilray looks like it will open more than 5% lower this morning and we expect to see more weakness in the near term. The recent trend has been volatile and that has kept us cautious with the opportunity. Over the long-term, we believe the combination of Aphria and Tilray will create a leading global cannabis company that has leading market share in Canada as well as in strategic international markets.