Tilray surges 27% after $4 billion merger with Aphria creates the world's biggest cannabis company

Cannabis the industry of now.

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Tilray rallied as much as 27.2% on Wednesday after the company announced plans to merge with Aphria and create the world's biggest marijuana company.

The two firms announced Wednesday they agreed to combine as a $3.9 billion firm focused on the global production and distribution of cannabis. Aphria shareholders will receive 0.8381 shares of Tilray for each Aphria share they hold, representing a 23% premium to Tilray's Tuesday closing price.

Shares of the combined company will operate under Tilray's name and trade under its ticker on the Nasdaq exchange, according to a press release.

Aphria gained as much as 6.8%. Its shareholders will own 62% of Tilray stock once the deal is completed. The companies characterized the arrangement as a "reverse acquisition of Tilray."

The combined company boasts revenue of $685 million over the last 12 months, the highest in the global cannabis industry, according to the press release. Canada alone counted for roughly $232 million of the combined firm's sales. Synergies between the companies are expected to form "a robust platform for future profitability and cash flow" for the merged entity.

The deal adds to an already positive end of the year for pot stocks. Cannabis producers rallied in November as President-elect Joe Biden's victory sparked hopes for the federal decriminalization of marijuana. New Jersey, Arizona, South Dakota, and Montana legalized marijuana in November as well, further opening up the US market to growing producers.

Separately, the House passed a bill to decriminalize cannabis earlier in December in a 228 to 164 vote. The bill is almost certainly set to die in the Republican-controlled Senate, but the outcome of two run-off Senate races in Georgia could swing the odds on the legislation reaching President-elect Biden's desk.

Tilray closed at $7.87 on Tuesday, down 50% year-to-date.