Tilray Couldn’t Win Alone

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

All year, my core argument against Big Cannabis revolved around the crowd of “me too” cultivators sitting on just enough of the market to block stronger rivals from succeeding.

The underlying business opportunity wasn’t a stumbling block. Demand for legal cannabis remains as robust as ever, making a lot of street-level entrepreneurs rich.

The problem was simply too many companies at the top of the food chain with billions of dollars to spend chasing world-changing ambition. One or two can achieve great things. Four or five get in each other’s way.

And that’s why I think Tilray Corp. (NASDAQ:TLRY) never really found its footing within the cannabis landscape. The business plan didn’t point anywhere beyond a dead end.

Ultimately, its leaders recognized that their company just lacked the sizzle to stand out on Wall Street or the scale to dominate the space. They did the smart thing and started talking to one of their top competitors about joining forces.

That competitor was Aphria Inc. (NASDAQ:APHA), probably my favorite Big Cannabis stock by virtue of its leadership in the mature but static medicinal marijuana segment. Aphira’s management heard Tilray’s case and agreed that they could go a lot farther together than they could on their own.

Say hello to the new Tilray, which is really about 60% Aphria, rolled into one $4 billion entity selling about 20% of the world’s cannabis. Think of it as Tilray selling itself to a bigger and more dynamic competitor.

The main things Aphria’s leaders are keeping are the Wall-Street-friendly name and the existing sales contracts. It is a long way down for Tilray investors, who collectively owned a company worth $20 billion at its peak.

Tilray investors are minority shareholders now. But at least their combined company has a shot at achieving something now.

And the industry can breathe a little easier. One less giant reduces confusion and waste. My only question is whether Aphria can achieve its goals faster now that it’s tied to Tilray.

Until we see proof of that, I’m sticking with the small Cannabis 2.0 companies eager to change all the rules. 

We’re now deep in the green in my IPO Edge, where a tiny cannabis stock has earned us 33% so far this month. I’d rather be in that company than all of Big Cannabis put together.

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