One combined joint is better than two — at least that’s how two of the largest cannabis companies, Aphria and Tilray, see it.

On Dec. 16, Aphria agreed to acquire Tilray for a 23% premium — becoming the largest cannabis company by sales and transforming the cannabis industry overnight. Tilray jumped over 26% after the announcement.

Cash and burn

Founded in 2013, Tilray was one of the first movers in the legal cannabis space — a grower and distributor of medicinal/recreational cannabis products.

In 2018, Tilray became the first publicly traded cannabis company on the US stock exchange.

Within two years, the once-beloved Wall Street stock surged 400% on the cannabis hype before crashing 98% alongside other cannabis stocks.

There’s a lot of things to blame:

• Reckless spending on production facilities, sales & marketing and into new products like CBD beverages, edibles and other forms of consumption.
• Limited access to funding as cannabis is still federally illegal in the US — investors and banks are reluctant to invest/lend money to cannabis companies.
• Failure to meet growth expectations and analysts began to forecast slower future growth — panicking investors and leading to a sell-off in cannabis stocks.

How can two cannabis companies be so different?

At the beginning of COVID, most of the cannabis industry was struggling to survive. Majority of companies were losing money and dozens had filed for bankruptcy.

To survive, Tilray raised $90m in March at a steep discount from its then stock price — which sent shares down 30% but prevented a bankruptcy.

Financially, Aphria had run a much better business than Tilray.

• $500m in cash — Aphria had nearly 5x more in cash entering COVID than Tilray.
• $85m in 2019 net losses — Aphria had a third of the losses of Tilray.

For investors… Meet the new Tilray

The combined company will trade under Tilray’s name on the NASDAQ and both companies are expected to see benefits from the merger:

• Tilray will get access to Aphria’s cash balance — putting Tilray in a stronger position to grow.
• Aphria will get access to growth opportunities in Europe through Tilray’s production facility.
• The combined company could reduce annual costs by $78m within 2 years.

The combined company will have total sales of $874m, more than Curaleaf and Canopy Growth, the two other largest cannabis businesses globally.

Overnight, Tilray has transformed from a struggling company to an industry leader.

Learn more: State of the cannabis industry and which stocks should you avoid?