The Aphria-Tilray Merger Shows Just How Overpriced Canopy Growth Is – Motley Fool

Cannabis producers Aphria (NASDAQ:APHA) and Tilray (NASDAQ:TLRY) rocked the industry when they announced last month that they were merging to create the largest cannabis company in the world (based on pro forma revenue). The move instantly creates a new leading cannabis company in Canada, and one that could become a big competitor in the U.S. market once pot is legal at the federal level.

For a long time, many cannabis investors saw Canopy Growth (NASDAQ:CGC) as the industry leader. But with the company struggling to generate sales growth, there are much better pot stocks to buy. And the deal with Aphria and Tilray only makes matters worse, as it creates a powerhouse that’s a much better bargain than Canopy Growth.

A marijuana leaf on a dollar bill.

Image source: Getty Images. 

Aphria was already ahead of Canopy Growth in terms of revenue

Even before the companies announced this deal, Aphria was arguably already a better buy than Canopy Growth. Over the trailing 12 months, Aphria has reported revenue of 561 million Canadian dollars ($443 million). And although it doesn’t cover the exact same period, Canopy Growth’s sales during its last four quarters totaled just CA$477 million ($377 million) — 15% less revenue than Aphria. Yet investors are paying considerably more for Canopy Growth, with a market cap of $10 billion, than they are for Aphria and its $2.2 billion valuation. 

Once you add Tilray into the mix, the discrepancy