The marijuana industry is booming and the cannabis market is expected to exceed $100 billion in the next five years.
Buy or sell? While it may seem like a simple question, the answer to this one could determine your wealth for years to come. The deal, which was first announced Thursday by the investment firms led by billionaire William Ackman, would combine the publicly traded companies that produce and sell marijuana, creating a firm worth more than $8 billion.
The cannabis industry has a new king, an $8 billion international behemoth whose sales have exceeded half a billion dollars in the past 12 months. I’ll give you three main reasons why I think this early industry leader is a safe bet over the long term. Tilray, Inc. (TSX:TLRY,NASDAQ:TLRY) is a Canadian cannabis company that just became the largest in the world after shareholders approved one of the largest mergers in the history of the cannabis industry. Here are some details from Tilray. Tilray, Inc. (Tilray) and Aphria Inc. (Aphria) today announced the completion of their previously announced business combination, ushering in a new era in the global cannabis industry. The combined company, which will operate as Tilray (the Company), combines two highly complementary businesses into a leading cannabis-focused consumer products company with the largest geographic footprint in the industry. The market value of the combined company was approximately $8.2 billion, based on the closing share price on the 30th trading day. April 2021. Tilray’s merger with Aphria has given rise to mixed feelings. Some analysts love it and others hate it. But I believe Tilray can be bought and held for the long term, and that Tilray is capable of dominating the European cannabis market.
3 reasons why I think Tilray is a great buy and hold tool
#No. 1 – the world’s largest cannabis company by revenue The merger of Tilray and Aphria created the world’s largest cannabis company by revenue. In their most recent quarterly results, Tilray and Aphria had combined revenue of $211 million. This is the highest quarterly sales in the global cannabis industry and higher than US producers like Green Leaf, Cresco and Curaleaf. This also makes Tilray the first cannabis company with annual sales of $1 billion. #81 million dollar synergy effect in 18 months Making a profit is one of the biggest challenges for cannabis startups. This merger will bring Tilray closer to profitability by reducing annual expenses by tens of millions of dollars. Tilray said it expects to generate $81 million in synergies within 18 months. This will have a huge impact on Tilray’s financial situation and will help bring the company closer to profitability. #3 – International Cannabis Game #1 Tilray has the best international presence in the global cannabis industry. The company is currently present on five continents and in 18 countries. Take a look at the map below. Image from the Tilray website. But at its core, Tilray is a company that plays in the European cannabis market. Many analysts believe that the European Union (EU) will eventually become the largest cannabis market in the world – after all, the EU has 750 million inhabitants, twice the population of the United States. Headquartered in Germany, Tilray Europe has established itself as the undisputed market leader in the EU. Tilray Portugal has an indoor and outdoor production and processing facility of 50 hectares in Portugal. This factory is one of the only and largest in Europe. Image by Tilray. This megacomplex is the cornerstone of Tilray’s European strategy. Tilray uses this production to supply medical cannabis to European markets, including Portugal, France and Germany. Here are some details from Tilray.
- In May 2019, Tilray Portugal received its first production license and initial GMP certification, allowing the company to produce and export bulk dried medicinal cannabis and bulk dried cannabis with active ingredient used as raw material.
- In September 2019, Tilray completed its first export to Germany from its European campus in Portugal, one of the largest wholesale shipments of medical cannabis between European countries to date. To date, Tilray has shipped medical cannabis products to Germany and Israel from its European campus in Portugal.
- In December 2019, Tilray Portugal received additional GMP certification, allowing Tilray to supply international markets with pharmaceutical grade dried flower and oils as finished medical cannabis products.
Aphria is also an early market leader in Europe, particularly in Germany, the largest country in Europe. Aphria was one of the first cannabis companies to be licensed to import medicinal cannabis into Germany. This approval allowed Aphria to take the lead in the young German cannabis market. The European cannabis market is still very immature and underdeveloped. But in the long term I expect the EU to become a huge market and Tilray is well placed to benefit from this growth.
Tilray shares fall 65% from 52-week high
Tilray’s share price has risen dramatically over the past six months. In late 2020 and early 2021, the stock experienced a sharp rise, before falling sharply in recent months. The stock is now down 65% from its 62-week high. This may not be the exact bottom of this bear market, but in the long run, this pullback looks like a great opportunity.
Risks to consider
Tilray is highly rated. Its P/E ratio of 8 is a significant premium to the broader equity market. Investors clearly like lots of good news, and Tilray will have to live up to inflated expectations. Tilray does not have a strong presence in the US cannabis market, which is currently the largest and fastest growing market in the world.
Large TilrayFusion Pattern
After the merger with Aphria, Tilray became the largest cannabis company in the world. The deal plays into the European cannabis market, which many analysts believe will become the largest in the world. I expect the European cannabis market to flourish in the coming years and I believe Tilray will be able to benefit from this growth. Join Cannabis Stock Trades to see how Tilray is structured in our sample portfolio. Take a look at the other cannabis stocks that I think are the most important. Best,Michael Water Editor, Cannabis Effects Trading
About the author and cannabis stock trading
Michael Wodicka is an equity analyst with over 20 years of trading and investment experience. His research has received attention in some of the industry’s most respected publications. He has been investing and managing investors in the cannabis sector since 2013. Mr. Vodicka offers his experience and advice to Cannabis Stock Trades members. Sign up for Cannabis Stock Trades and receive exclusive analysis from Mr. Water, trade alerts and a sample portfolio.
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