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Tilray Eyes U.S. Marijuana Entry in MedMen Deal. What Wall Street Is Saying.

A Tilray cannabis production site in Cantanhede, Portugal.


Canadian cannabis producer Tilray announced its initial play on the larger U.S. market with a complicated deal for convertible debt in cannabis retailer MedMen Enterprises.

Tilray (ticker: TLRY) said it and other investors acquired about $165.8 million in convertible MedMen debt and associated warrants that were held by funds affiliated with Gotham Green Partners. The debt was acquired by a newly created limited partnership in which Tilray will own a 68% stake. The debt’s maturity date was also extended to Aug. 16, 2028.

Tilray hopes to pay Gotham Green Partners for its stake with 9 million shares, though it will need its shareholders to authorize the new stock by Dec. 1. Otherwise, Gotham Green could ask for cash.

Cantor Fitzgerald analyst Pablo Zuanic wrote in a note Tuesday night that he believes the deal structure and limited partnership aspects were an attempt to get the deal approved by both the Nasdaq and the Toronto Stock Exchange.

If exercised, Tilray says it would have roughly 21% of MedMen shares (MMNFF), but the grower will need to wait to do so. Because Tilray is listed on the Nasdaq, it can’t have cannabis operations in the U.S., where the plant is illegal at the federal level. MedMen is listed in Canada and trades over the counter in the U.S.

In a conference call discussing the deal, Tilray CEO Irwin Simon suggested the company could fully acquire MedMen once cannabis is legal at the federal level.

Tilray stock jumped 1.9%, to $13.37, in recent trading. MedMen stock was up 38% to 37 cents. The AdvisorShares Pure US Cannabis ETF (MSOS), an exchange-traded fund focused on cannabis firms with U.S. operations, was up 0.8%.

“Investors need to know that this deal is confusing, but they’re buying convertible debt—and seem to be paying a lot for it,” AdvisorShares Chief Operating Officer Dan Ahrens told Barron’s in an email. “They aren’t actually buying a majority stake in the company due to current U.S. regulations.”

The deal implies a $561 million market value for MedMen, well ahead of the roughly $220 million market value from Tuesday’s close, according to Zuanic. Ahrens, who manages the  AdvisorShares Pure US Cannabis ETF, says that it shows how much Tilray wants a foothold in the U.S. market and how valuable a U.S. operator could become.

“The news alone may be a needed positive for the overall cannabis space,” Ahrens said. “But the details are that this is just an option for Tilray to possibly get into the United States in the future, but dependent upon US Federal reform.”

CantorFitzgerald’s Zuanic said MedMen doesn’t move the needle for Tilray, in terms of its vision of hitting $1 billion in sales from U.S. cannabis assets by 2024. Still, he sees it as a start, which gives credence to its vision for U.S. operations.

“Although MedMen would not have been our first choice, the deal size and economics work for Tilray at this stage, in our view; it gives up 2% of its market cap, and the stock will likely rerate by more than that,” Zuanic wrote. “We can only speculate about what comes next, but Tilray management has implied it also wants US cultivation and brands; whether this will mean a vertically integrated operator or a brand remains unclear at this stage.”

MedMen also announced a $100 million private placement of its shares and warrants to a group of investors led by Serruya Private Equity. Though some U.S. cannabis operators have established profitable businesses, MedMen’s plan to invest heavily in California retail and expand from there has proved costly. The company has been burning through cash for years, though it managed to improve its loss from operations to $26.9 million in the fiscal third quarter, down from $40.6 million in the same quarter in 2020, through divestitures and cost-cutting measures.

MedMen ended the fiscal third quarter with $326 million in net debt. If you factor in the recently announced equity raise and $160 million in convertible debt, it leaves $87 million in net debt, according to Zuanic. He upgraded the stock to Neutral from Underperform and instituted a 30-cent price target on Tuesday, noting that MedMen may attract a premium now that Tilray is involved. Zuanic has an Overweight rating on Tilray with a $19 price target.

Write to Connor Smith at [email protected]

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