April 10, 2021 4:00 PM

Tilray: Canada’s gateway into America’s legal cannabis market

Tilray continues to make strategic deals from seed to retail with a variety of companies, all the while positioning itself for global opportunities.

/ Published 2 years ago

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Tilray (NASDAQ:TLRY), an American/Canadian cannabis company, did some phenomenal deal-making with a series of agreements in December last year. The deals caused Tilray’s stock some significant volatility.

It received a global supply agreement with Novartis AG (NASDQ: NVS) and developed a research partnership with Anheuser Busch InBev SA. This January, Tilray bought Natura Naturals for CA$35 million (US$26.3 million) in stocks and cash.

What did Tilray buy?

Classified as a definitive pact, Tilray received a 662,000 square feet greenhouse. Bloomberg reported this acquisition doubles Tilray’s ability to cultivate. The pot becomes even sweeter if Natura makes its quarterly production targets. A possible $35 million of common stock owned by Tilray could wander over again. It also gets a bit of protection from supply shortages in the Canadian recreational markets plus it gets to use the licenses Natura acquired. Tilray has control from seed to retail.

Who is Natura Naturals?

Located in Leamington Ontario, Natura has extensive farming experience in medical cannabis. It grows the product with hydroponic methods honed from 40 years of usage on a variety of greenhouse operations. Natura updated its greenhouse with a proprietary air handling system that helps achieve optimal growth.

In 2017, it acquired a 32 strain genetics library for its medical cannabis portion of the business. In 2018 the firm updated its warehouse adding 12,000 square feet and a level 9 vault. Then it made a three-year supply agreement with Emblem Corp. (TSXV: EMC) (OTCBB: EMMBF) who processes medical cannabis. In September, Natura’s 13,430 square feet processing and packaging area received Health Canada approval. At that point, Tilray now had full capabilities to package and process recreational and medical cannabis.

stock market
Tilray continues to acquisition companies to strengthen the global footprint and ensure supplies. (Source)

Evolving Tilray

Fortune magazine described Tilray as the gateway to America’s legal marijuana industry. Going public in July 2018 on NASDAQ no less and has Class 1 shares and Class 2 shares. Privateer Holdings Inc holds a majority of Class 1 shares. It mostly sells medical marijuana products to pharmaceuticals. In Canada, it did something slightly different by creating a webpage which launched an e-commerce platform that sells directly to consumers. What investors should make note of before purchasing Tilray is that it classifies as a controlled company under Privateer Holdings, who owns 76 percent. The firm ships their medical marijuana to 12 countries.

MarketWatch reported Tilray signed a global revenue-sharing agreement with Authentic Brands Groups (ABG). Authentic Brand Groups does portfolio brands with distinct, recognizable voices. The company has brands in fashion, home/health wellness sectors, and entertainment to name a few. It will develop a portfolio of AGB consumer cannabis products with Tilray, the supplier. This year becomes Tilray’s global footprint establishment.

Stock watch

Tilray had an initial public offering (IPO) lock-up period. Its expiration date lists as for Jan. 15.  In most cases, insiders selling causes a company’s stock to falter for a temporary period. Between the market rollercoaster, the wheeling and dealing and the expiration date Tilray’s stocks pulled back. Privateer, the parent company, did not sell stock and Tilray announced that. The CEO of Tilray Brendan Kennedy lists as the co-founder and executive chairman man of Privateer.

For the Canadian recreational markets, Tilray made at least seven agreements with provinces and the two territories and has lined up two other possibilities. By hooking up with Anheuser-Busch InBev, the company positioned itself to deal edible cannabis. Now a preferred supplier of cannabis for Authentic Brands Group (ABG) is positioned for the coming cannabis recreational markets.

Be aware

Tilray has positioned itself for global opportunities as the global cannabis market will flourish. Though volatile in the short term, it may prove to be a profitable stock looking at by decades. Some analysts believe they need to up their production capacity. Aurora Cannabis (NYSE: ACB) and Canopy Growth Corporation (NYSE: CGC) have significantly more capacity than Tilray.

If Privateer decides to sell its stock, it can cause issues if not carefully handled. Options traders have discussions on trading on the short with Tilray. Seeking Alpha says for veteran traders who understand the direction of the timing of moves on stock prices, either way, could have a possible risk-free way to make money once Tilray sells shares.

Presently, options traders have not had a chance to play with Tilray stock since so few shares trade in the open market. If it ever does arbitrage activity, it would allow put-call parity. If the price of the options does not align well with the stock, riskless profit on selling the overpriced assets while buying the underpriced ones may give monetary delight. Investors need to tread carefully in on Tilray stock due to the volatility. Having patience as they release stock possibly in the latter part of the year could prove profitable. Tilray has given employees stock in the enterprise as well.

(Featured photo by Cannabis Tours via Flickr. CC By-SA 4.0)

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