By HVY Journalists: Tilray shares (NASDAQ:TLRY) were blazing 11% higher over the last day in Monday afternoon trading. The large-cap marijuana stock lit up the market on news of a downstream merger with its parent company, Privateer.
Pot company Tilray to Merge with Privateer
The early Tilray investor holds 75 million of Tilray’s outstanding shares.
That gives Privateer a 77% stake in the Canadian cannabis company. Privateer is going to quietly cash out its Tilray shares in an orderly process. It will happen gradually over two years, the cannabis company said in an announcement.
That sparked up the company’s share price 13% in Monday pre-market trading. By Monday afternoon shares of Tilray were up surging as high as 25% over the previous 24 hours, though they pared those gains ahead of the opening bell.
Tilray Chief Financial Officer Mark Castaneda says:
We believe this transaction will give Tilray greater control and operating flexibility, while allowing us to effectively manage our public float.”
A Heavily Shorted Marijuana Stock
Tilray is a pharmaceutical marijuana company based out of Toronto, Canada. It had a market cap a little over $10 billion last December. Furthermore, it’s one of the top two most valuable marijuana companies in North America. (The other is Canopy Growth Company.)
Though Tilray reported strong Q1 earnings at the beginning of last month (its revenue grew like a weed, surging 195% to $23 million in the first quarter), traders have bet big against the stock, with 24.2% of the float currently shorted according to FactSet.
The market had some concerns about the company’s expanding operating costs as well as concerns that Privateer would flood the market with shares.
Therefore the deal with Privateer Holdings allays those concerns with a structured release of the cannabis private equity company’s shares over two years. At the end of the gradual sell-off, Tilray will acquire Privateer in a downstream merger.
Tilray’s CFO told CNBC in an interview:
“Privateer is giving Tilray a lot of operational flexibility and obviously believes in long-term value of this business and is not pushing to sell its shares as soon as possible, so it’s kind of mutually beneficial, this transaction, for both parties.”
Peter Thiel Made a Killing in Alternative Assets
Silicon Valley King Peter Thiel is a major backer of Privateer Holdings. In fact, Thiel’s Founder’s Fund was the first institutional investor to roll up some cannabis industry shares during a Series B financing round through Privateer in December 2014.
The PayPal and Palantir Technologies founder has reaped enormous profits from unconventional investments. He was one of the first high profile Silicon Valley founders to publicly back bitcoin with a major investment. His seed round blockchain investment in Block.one netted a mouth-watering 6,500% ROI in only three years.