Tilray and Aphria, two of the biggest marijuana companies in Canada, announced plans to merge on Wednesday and create the world’s largest cannabis outfit.

With existing medical and recreational cannabis businesses in Canada and Europe, the new conglomerate is positioning itself to eventually enter the biggest weed market in the world: the U.S.

“The next big prize is the United States,” said Tilray CEO Brendan Kennedy, who will become a board director of the combined company.

Brendan Kennedy, CEO of Canada-based Tilray.  AFP VIA GETTY IMAGES

Cannabis is still illegal under U.S. federal law, so the company won’t be able to export into the country unless laws change under President-elect Joe Biden. And as of now, the new company, to operate under the Tilray brand, does not have any US-based cannabis cultivation or retail licenses.

“There seems to be cross over to bring some of the Canadian [cannabis] brands to the U.S., and some SweetWater brands to Canada,” Kennedy said Thursday.

Pending approval from regulators, the companies will effect an all-stock merger to create a sole firm with an estimated market value of $3.9 billion and combined revenue of $695 million, making the company bigger than U.S.-based giant Curaleaf.

The new company will operate as "Tilray," which is traded on the NASDAQ.

Aphria shareholders will own 62 percent of the new company, and Aphria CEO Irwin Simon will be the new entity's chief executive and chairman.

A worker checks cannabis plants in a greenhouse of Tilray medical cannabis producer's European production site.  AFP VIA GETTY IMAGES

The deal would need to be approved by regulators in both Canada and in the United States, where shares of both Aphria and Tilray are traded on NASDAQ.

2020 has been a great year for American cannabis companies—with demand soaring during the COVID-19 pandemic lockdowns—but a very hard time for their counterparts in Canada, where biblical oversupply has saturated a limited market and crashed prices.

But things would turn around if the U.S. market was open to Canadian competition. And that seems to be the rosy future that Canadian cannabis giants Aphria and Tilray are betting on.

“I think medical cannabis will be legal at the federal level, which means medical cannabis can cross state lines and be imported into the U.S., like we export cannabis from Canada and Portugal to about 15 countries now,” Kennedy said. “Anyone who thinks there’s a state-specific medical market is wrong.”

As for the recreational market, Kennedy says the state-specific markets, with interstate trade banned, “are not going to last long.”

Kennedy believes that cannabis will be distributed like alcohol and tobacco within two years’ time. That would require significant overhaul of US federal drug laws—and would significantly disrupt all US cannabis companies’ existing business models.

Tilray shares surged 32% in light of the merger news, while Aphria shares jumped more than 6% on Wednesday. Aphria slumped 10% on Thursday after its high on Wednesday and Tilray is down 8% from Wednesday.

The deal, first reported by cannabis consultant and Twitter personality @BettingBruiser on Tuesday evening, comes during the same week when other Canadian cannabis companies are laying off workers and reducing production in attempts to stave off catastrophe.

Aurora Cannabis, a direct competitor to Aphria and Tilray, cut 200 jobs and "indefinitely" halted grow operations at the company's enormous greenhouse in Alberta, as Marijuana Business Daily first reported.

Canopy, also a Canadian operator, shuttered grow operations in four cities to cut costs and improve margins.

And Tilray is far from profitable. In its most recent quarterly report filed with the Securities and Exchange Commission in September, the company posted more than $250 million in losses in 2020.

In the two years since Canada legalized recreational marijuana nationwide, investors and entrepreneurs have seen a full boom-and-bust cycle. With opportunity in the United States limited by federal law, excited retail and institutional investors pumped so much cash into Canadian firms that several became unicorns.

10 June 2020, Schleswig-Holstein, Neumünster: The shell of a hall is located in an industrial area. DPA/PICTURE ALLIANCE VIA GETTY IMAGES

Flush with investment, companies built enormous greenhouse operations, producing more cannabis than the population of Canada, a smaller market than the U.S. state of California alone, could consume. Value in some companies has dropped by 50 percent or more from 2018 highs.

Meanwhile, in the United States, several large cannabis companies are continuing to snap up new licenses in new states—and continuing to post record profits, including multi-state operators like Cresco Labs, Green Thumb Industries and Curaleaf.

President-elect Joe Biden has said that he favors decriminalization of cannabis but has made no indication of relaxing federal laws that restrict banking, tax cannabis firms more heavily than other businesses, and prohibit interstate trade.

Laws that would ease these rules and open up the US cannabis industry to more opportunity and investment have been bottled up in the Republican-controlled Senate for years.

Will Yakowicz contributed to reporting for this story.