In 2020, Tilray (TLRY) and Aphria (APHA) announced their merger, which would create the world’s largest cannabis company. After the initial euphoria, both stocks are down sharply from their peaks amid a widespread sell-off in marijuana stocks. Looking at the long-term picture, what’s the forecast for TLRY stock and where could the stock be in 2025? Is the stock a good investment after the crash?
Marijuana stocks had been on a literal “high” ever since Joe Biden was elected as the U.S. president. A flurry of positive events after the elections led to a sharp rise in all marijuana stocks. However, over the last two months, cannabis stocks have fallen and they have fallen hard.
Is the Tilray-Aphria merger in trouble?
While Aphria stockholders have approved the merger, Tilray postponed the stockholder meeting to approve the merger. Nevertheless, for all practical reasons, it's unlikely the merger will fall apart given the insider holding in TLRY. Also, the company has lowered the quorum requirement for the stockholder meeting, which would also help to get the merger approved.
What is the forecast for Tilray stock into 2025?
Tilray’s stock forecast for 2025 would depend on two things. The first factor is on the macro level and regards marijuana legalization, not only in the U.S. but in some of the other markets.
The second factor that would determine where TLRY stock could be in 2025 regards how the merger with APHA plays out. There are significant synergies between the two companies and they would complement each other's capabilities. The combined company would be a cannabis powerhouse having operations across both medical and adult-use cannabis. It would also be a geographically diversified business.
Tilray has posted revenues of almost $192 million in the last 12 months while Aphria, which is the larger company between the two, has posted revenues of $480 million over the period. This would mean a combined revenue of $672 million.
If we assume a CAGR of 50 percent over the next five years, the combined company would post revenues of $5.1 billion by 2025. The assumed CAGR is below what these companies have been posted over the last three years, but I am being conservative in my estimates.
What is TLRY stock valuation now?
The combined market capitalization of TLRY and APHA is around $6.9 billion. This would mean 2025 price-to-sales multiple of 1.35x. The valuation multiples would change drastically if we change our growth assumptions.
Meanwhile, the combined entity would be able to reach profitability much sooner than they might do as a standalone company. Also, I won’t be surprised if, after their merger with APHA, TLRY pursues many other small to medium sized acquisitions over the next five years.
We would see a lot of consolidation in the marijuana industry over the next five years and there are already signs of that. In March, Curaleaf announced the acquisition of EMMAC Life Sciences for around $285 million.
Is TLRY stock a good long term investment?
Overall, by 2025 we could see a lot of jurisdictions globally taking a more favorable view of marijuana legalization. With its presence in key markets of North America and Europe, Tilray would be well equipped to capitalize on the opportunity. Also, there is now growing acceptance of medical uses of cannabis, and Tilray has a good holding in the European medical cannabis market.
I find Tilray stock attractive at these prices and it looks like a good long-term investment before the merger with Aphria. While the stock might continue to be volatile as is the case with all marijuana stocks, the recent fall in cannabis stocks is an opportunity to buy some of the quality names including Tilray.