Text size
A Tilray cannabis accumulation tract successful Cantanhede, Portugal.
PATRICIA DE MELO MOREIRA/AFP via Getty ImagesCanadian cannabis shaper Tilray announced its archetypal play connected the larger U.S. marketplace with a analyzable woody for convertible indebtedness successful cannabis retailer MedMen Enterprises.
Tilray (ticker: TLRY) said it and different investors acquired astir $165.8 cardinal successful convertible MedMen indebtedness and associated warrants that were held by funds affiliated with Gotham Green Partners. The indebtedness was acquired by a recently created constricted concern successful which Tilray volition ain a 68% stake. The debt’s maturity day was besides extended to Aug. 16, 2028.
Tilray hopes to wage Gotham Green Partners for its involvement with 9 cardinal shares, though it volition request its shareholders to authorize the caller banal by Dec. 1. Otherwise, Gotham Green could inquire for cash.
Cantor Fitzgerald expert Pablo Zuanic wrote successful a enactment Tuesday nighttime that helium believes the woody operation and constricted concern aspects were an effort to get the woody approved by some the Nasdaq and the Toronto Stock Exchange.
If exercised, Tilray says it would person astir 21% of MedMen shares (MMNFF), but the grower volition request to hold to bash so. Because Tilray is listed connected the Nasdaq, it can’t person cannabis operations successful the U.S., wherever the works is amerciable astatine the national level. MedMen is listed successful Canada and trades implicit the antagonistic successful the U.S.
In a league telephone discussing the deal, Tilray CEO Irwin Simon suggested the institution could afloat get MedMen erstwhile cannabis is ineligible astatine the national level.
Tilray banal jumped 1.9%, to $13.37, successful caller trading. MedMen banal was up 38% to 37 cents. The AdvisorShares Pure US Cannabis ETF (MSOS), an exchange-traded money focused connected cannabis firms with U.S. operations, was up 0.8%.
“Investors request to cognize that this woody is confusing, but they’re buying convertible debt—and look to beryllium paying a batch for it,” AdvisorShares Chief Operating Officer Dan Ahrens told Barron’s successful an email. “They aren’t really buying a bulk involvement successful the institution owed to existent U.S. regulations.”
The woody implies a $561 cardinal marketplace worth for MedMen, good up of the astir $220 cardinal marketplace worth from Tuesday’s close, according to Zuanic. Ahrens, who manages the AdvisorShares Pure US Cannabis ETF, says that it shows however overmuch Tilray wants a foothold successful the U.S. marketplace and however invaluable a U.S. relation could become.
“The quality unsocial whitethorn beryllium a needed affirmative for the wide cannabis space,” Ahrens said. “But the details are that this is conscionable an enactment for Tilray to perchance get into the United States successful the future, but babelike upon US Federal reform.”
CantorFitzgerald’s Zuanic said MedMen doesn’t determination the needle for Tilray, successful presumption of its imaginativeness of hitting $1 cardinal successful income from U.S. cannabis assets by 2024. Still, helium sees it arsenic a start, which gives credence to its imaginativeness for U.S. operations.
“Although MedMen would not person been our archetypal choice, the woody size and economics enactment for Tilray astatine this stage, successful our view; it gives up 2% of its marketplace cap, and the banal volition apt rerate by much than that,” Zuanic wrote. “We tin lone speculate astir what comes next, but Tilray absorption has implied it besides wants US cultivation and brands; whether this volition mean a vertically integrated relation oregon a marque remains unclear astatine this stage.”
MedMen besides announced a $100 cardinal backstage placement of its shares and warrants to a radical of investors led by Serruya Private Equity. Though some U.S. cannabis operators person established profitable businesses, MedMen’s program to put heavy successful California retail and grow from determination has proved costly. The institution has been burning done currency for years, though it managed to amended its nonaccomplishment from operations to $26.9 cardinal successful the fiscal 3rd quarter, down from $40.6 cardinal successful the aforesaid 4th successful 2020, done divestitures and cost-cutting measures.
MedMen ended the fiscal 3rd 4th with $326 cardinal successful nett debt. If you origin successful the precocious announced equity rise and $160 cardinal successful convertible debt, it leaves $87 cardinal successful nett debt, according to Zuanic. He upgraded the banal to Neutral from Underperform and instituted a 30-cent terms people connected Tuesday, noting that MedMen whitethorn pull a premium present that Tilray is involved. Zuanic has an Overweight standing connected Tilray with a $19 terms target.
Write to Connor Smith astatine connor.smith@barrons.com
English (US) ·