National Post (National Edition)
Tilray's deal with Aphria more than just about enlarging footholds in Canada and U.S.
At first glance, Tilray Inc.' s deal with Aphria Inc. might look like a bid to create a Canadian heavyweight, or a move to gain a better foothold in the U.S.
But as the Italians say, “dietrologia” — the surface explanation is never the real one. Much of the logic, it turns out, is rooted in Europe.
Tilray has a cultivation facility in Portugal, while Aphria has another in Germany — plus a prescription business that's connected to 13,000 German pharmacies and others throughout Europe. This allows for tariff-free cannabis for the European Union, which is a market that the companies are betting will liberalize quickly.
“Putting our companies together creates the largest medical cannabis business in Europe, and prepares us if one day legalization happens in the EU,” Aphria CEO Irwin Simon said in a discussion about the deal last week.
His Tilray counterpart agrees. “There's a good chance that two years from now, five to six countries in Europe will legalize cannabis for adult use,” Tilray CEO Brendan Kennedy said. France is likely to launch a pilot program in the next 60 days, and Tilray has an application to supply marijuana for it, Kennedy said.
From there, as the U.S. has seen, it's just a matter of time. When medical cannabis is allowed, it gets much harder to argue against legalizing what remains of the illicit market. Simon, who is poised to be CEO of the combined company, said he foresees Germany being the first to legalize recreational cannabis. And legalization in one place could set off a chain reaction among others.
“There's the question — if they decriminalize, why aren't we legalizing?” Simon said. “People will look at the amount of tax dollars they're losing.”
The EU currently has a patchwork of local rules, ranging from full prohibition in countries like Sweden to lax rules in others. Some major economies, like Spain and the Netherlands, largely allow possession for recreational use.
Recent developments in Europe show the ball is already rolling, albeit slowly. Switzerland's National Council voted to make access for medical cannabis easier. North Macedonia's Association of Medical Cannabis Growers is appealing to the country's parliament for permission to export cannabis flower. And a group in Malta is seeking decriminalization.
There are compelling reasons to target Europe: The EU has around 446 million inhabitants compared to about 328 million in the U.S.
The region is particularly attractive for the hundreds of small Canadian players, who are struggling with an oversupply of raw flower and an uncertain path into the U.S.
“Consolidation had to happen,” Simon said. “Because in Canada there's already 500 of us chasing the same puck.”