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The pot is hot.
Canadian cannabis company Tilray announced Monday the merger of an agreement with majority shareholder Privateer, a private equity-focused cannabis holding company backed by billionaire Peter Thiel.
The agreement would prevent Privateer from releasing its 75 million shares (about 77% of Tilray's outstanding shares) to the public, but would rather discharge them slowly to institutional and strategic investors as well as to companies during the first year of the contract. , at Tilray's discretion.
For Tilray's shareholders, the merger would prevent Tilray's actions from flooding the market and potentially lowering its price. "The transaction in fact reverses the control of a Privateer share sale to TLRY and gives TLRY an increased ability to manage its float," said Vivien Azer, Cowen badyst, in a note released on Monday. . "In addition, prolonged lockup and transaction conditions reduce the risk badociated with an excessive increase in TLRY float."
For Privateer investors, the agreement means that returns could be even higher.
The merger would allow investors to "maximize global returns" in a "tax-efficient" manner, according to Michael Blue, Managing Partner of Privateer, in a press release. Nevertheless, Tilray's actions have been notoriously a target for short sellers. Many of these investors were optimistic for a short position if Privateer ended up getting rid of 75 million shares. But with the merger, they may have to wait their hour.
Although the share price plummeted from about $ 200 last September to about $ 40, investors were optimistic about the announcement, pushing the stock up 11% Monday at the end of the day. closing of markets.
Nevertheless, for other players in the cannabis market, the merger marks a mark of confidence for cannabis as a whole, as well as for Tilray.
"It's not just a pump and dump industry – a lot of people are saying it, but there's still huge upside potential in all markets," said Mark Krytiuk, president of Nabis Holdings Canadian investment. cannabis space, said.
"This transaction gives us more control over the free float and allows us to deal with long-term investors or strategic investors instead of just selling these shares in the market," Tilray Chief Financial Officer said on Monday in Castberg. , Bloomberg.
And for those like Krytiuk, the Tilray merger shows a distinct strategy.
"We are also aligning ourselves with smart money, which will not suddenly generate a return of 15% to 20%, then sell shares," Krytiuk said. "This clearly shows the confidence that Privateer has in Tilray and make it a long-term brand."
Given the large number of large companies looking to get into cannabis, Tilray's decision seems calculated. In fact, Anheuser-Busch InBev (AB InBev) – the maker of Budweiser – has recently been badociated with the Canadian Cannabis Society to look for beverages based on tetrahydrocannabinol (THC) and cannabidiol (CBD).
By targeting strategic investors and companies to free up their shares, Tilray appears to be pushing for more deals involving large consumers of drinks and drugs. "So, if AB InBev wanted to make a significant investment, we now have a better way to manage that investment with primary and secondary stocks, and there could probably be others, such as corporations." from GPC, tobacco companies or pharmaceutical companies, which invest directly in Tilray, "said Castaneda. Bloomberg said Monday.
With the merger movement, Tilray seems well placed to attract even larger investors through strategic partners and large companies seeking to invest in the cannabis sector. Krytiuk thinks investors will see a lot of "different multi-state operators joining forces, and even institutions and investors."
But while Tilray's share appears to be largely focused on institutional investors, Krytiuk believes there may be benefits, even for individual investors.
"Compared with six months ago, the market is currently down, which helps to stimulate nervous people who say they started early in Tilray," Krytiuk said. "It really emphasizes that the main shareholder is attached to Tilray and a long-term place. It almost helps private individuals and small investors because they find that if these big entrepreneurs are willing to block their shares and believe in this business, maybe [they] should also. "
Nevertheless, the blocking agreement awaits the approval of the shareholders of Tilray and Privateer before the merger can be completed.
In other words, it is not yet completely legal.
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