Tilray shares rise on deal to merge with biggest shareholder

A downwardly sloping line

A downwardly sloping lineMore

IFP Advisors Inc now owns 1,729 shares of the company's stock valued at $130,000 after purchasing an additional 655 shares in the last quarter.

It's worth pointing out that these shares now represent 77% of Tilray's total shares outstanding.

The cannabis cultivation company signed a non-binding letter of intent with Privateer Holdings Inc, the equity fund created by PayPal Holdings Inc (NASDAQ:PYPL) founder Peter Thiel, to sell its 77% stake in the company over the next two years.

News of the merger and extended lock-up sent Tilray's share price, which closed Friday at US$38.80, soaring by nearly 15 per cent in the first few hours of morning trading. In the second year, the remaining shares will be subject to a staggered release.

But over the past six months, Tilray has seen its stock price erode dramatically - the shares are now worth half what they were worth in mid-January. "During the first year following the closing of the merger, shares will be released only pursuant to marketed offerings and/or block trades to institutional investors or via stock sales to strategic investors, all of which would be arranged at the sole discretion of Tilray", Tilray said in a statement.

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"The ideal danger with Tilray's stock has persistently been its cap construction and that minute drift. You simply never knew when Privateer became going to flood the market with stock", talked about Khurram Malik, Partner and Head of Research at Jacob Capital Management.

"We appreciate the long-term confidence that Privateer has in the Tilray business and we look forward to having their investors as part of our stockholder base", said Tilray's CFO Mark Castaneda. "In addition, Privateer has agreed in the LOI to a lock-up on its Tilray shares during the negotiating period for the definitive merger agreement".

Castaneda expects companies from the pharmaceutical, alcohol, tobacco and consumer packaged goods industries to step up their investments in cannabis over the next 12 to 18 months. Tilray now has a $100 million joint-venture agreement with European brewer Anheuser-Busch InBev to research and make cannabis-infused non-alcoholic drinks for the Canadian market.

For a company as big as Tilray, it is a contrary occurrence as most of its peers have watched their stocks gain in 2019.

"The root of the short thesis on this firm is that there's simply been too noteworthy of an overhang with Privateer's possession". However, trading at $38.80, the positives to be taken from the results still haven't managed to stop Tilray stock from declining overall.

The merger, and extension of the lock-up is still subject to a shareholder vote, which will take place "as expeditiously as possible", according to the company.

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