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ETFs to Buy as Tilray-Aphria Merger Creates Cannabis Giant

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Cannabis stocks have been already soaring of late on legalization hopes. The latest merger announcement between Tilray (TLRY - Free Report) and Aphria (APHA - Free Report) has made the bullish case for these stocks even stronger. The all-stock deal is valued at about $3.9 billion.  

Per the terms of the agreement, Aphria shareholders will receive 0.8381 shares of Tilray for each Aphria common share, a 23% premium to Tilray’s closing price as of Dec 15. Upon the closure of the transaction, Aphria will own about 62% of the combined company. The merged company will continue to trade under the name Tilray and will be led by Aphria’s CEO Irwin Simon, who will serve as both CEO and chairman.

The combination will create the world's largest cannabis company in terms of annual revenues, which is expected to be worth C$874 ($685) million. As such, the combined entity will edge out current industry leaders such as Curaleaf Holdings and Canopy Growth (CGC - Free Report) .

The deal, which is pending regulatory approvals, is expected to close in the second quarter of 2021. It is expected to deliver C$100 million of annual pre-tax cost synergies within 24 months of the completion of the transaction (read: Cannabis ETFs Set to Soar in 2021 on More U.S. Legalization).

The merger could spur a wave of cannabis consolidation, and is happening at a time when the marijuana industry is looking hot with wave of legalization on the way. The upcoming administration of Joe Biden will speed up the legalization of marijuana at the federal level while the U.S. House of Representatives passed a bill — the MORE Act — that would remove marijuana from the list of controlled substances. The bill, however, faces little chance of passing at the Senate.

Market Impact

Following the news, shares of Tilray jumped more than 18%. The stock crushed its average volume as nearly 94.9 million shares moved hands compared with 17.3 million, on average. Meanwhile, shares of APHA lost nearly 1%.

Investors seeking to take advantage of the merger deal could invest in any of the cannabis ETFs:

Cambria Cannabis ETF (TOKE - Free Report)

This is an actively managed ETF that seeks to invest in approximately 20 to 50 of the top companies with exposure to the broad cannabis industry based on Cambria’s determination as to their exposure to the industry. It holds 35 stocks in its basket with American firms making up for half of the portfolio and Canada taking 33.8% share. The fund has $19.3 million in AUM and an average trading volume of 24,000 shares. It charges 42 basis points (bps) in annual fees and has risen 3.1% on the day.

The Cannabis ETF (THCX - Free Report)

This ETF offers investors exposure to a basket of stocks that are expected to benefit from the growth of hemp and legal marijuana industries. Holding 28 stocks in the basket, Canadian firms make up for 65.9% share while the United States takes around 29.3% of assets. The fund has amassed about $43.9 million in AUM and trades in a good volume of about 106,000 shares per day, on average. It charges 70 bps in annual fees and is up 3.5% on the merger announcement.

AdvisorShares Pure US Cannabis ETF (MSOS - Free Report)

This is a new entrant in the marijuana space, having accumulated $165.2 million within four months of debut. It is an actively managed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators. The product holds 32 securities in its basket and charges 74 bps in annual fees. The fund trades in an average daily volume of 213,000 shares and has jumped 3.4% following the merger news.

AdvisorShares Pure Cannabis ETF (YOLO - Free Report)

YOLO is an actively managed ETF with a dedicated cannabis investment mandate domiciled in the United States. It seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities. The fund holds a basket of 38 stocks with American firms making up for half of the portfolio, followed by 32.7% share in Canada. It has gathered $137.8 million in its asset base and charges 75 bps in annual fees. The product trades in an average daily volume of 232,000 shares and has gained 2.9% on the day (read: Cannabis ETF Hits New 52-Week High).

Amplify Seymour Cannabis ETF (CNBS - Free Report)

With AUM of $21.9 million, CNBS is actively managed and invests 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. The fund holds 24 securities and charges 75 bps in annual fees. It trades in an average daily volume of 52,000 shares and has risen 2.6% following the news (read: Top ETF of November & Its Best Stocks).

ETFMG Alternative Harvest ETF (MJ - Free Report)

This is the first and world’s largest ETF focusing on the global cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 33 securities in its basket with American firms making up 82.1% of the portfolio. The ETF has AUM of $986.3 million and trades in a solid volume of around 2.1 million shares. It charges 75 basis points in annual fees and has gained 1.6% on the day.

Global X Cannabis ETF (POTX - Free Report)

This ETF seeks to invest in companies across the cannabis industry and tracks the Cannabis Index. It holds 18 stocks in its basket with Canadian firms accounting for 77.7% of assets while the United States takes 11.2% share. The product has accumulated $38.6 million in its asset base and trades in an average daily volume of 122,000 shares. Expense ratio comes in at 0.50%. POTX has added 1.4% on the day.

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