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Tilray: An Irrational Reaction

Jun. 12, 2019 1:01 PM ETTilray Brands, Inc. (TLRY), TLRY:CAACB, ACB:CA7 Comments


  • Tilray surprised investors in a positive way when management announced plans to create an extended lock-up period for the firm's original investors.
  • This move seems to be reinforcing the idea in the market's eyes that stability has been instilled in the firm for now.
  • While this may be true, the transaction, which created significant upside in the stock, really meant nothing and investors should expect a reversal.
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Financial engineering can be a wonderful tool used by the management teams of firms in order to create value. In the past, for instance, I have talked about some of the innovative financing transactions of cannabis giant Aurora Cannabis (ACB) that allowed the company to grow on terms it might not otherwise have received. However, not all financial engineering is accretive, but in an industry where any news that’s not bad news is considered bullish, even transactions that don’t create value for investors more broadly can be given a high-five by the market. Such is the case with a recent move made by the management firm at Tilray (NASDAQ:TLRY), a rival to Aurora in the cannabis space. This latest transaction, while proving to be good for the investors immediately affected, received significant applause by the market, but the end result, likely, will be a correction of sorts, all things being equal, because for the company as a whole, the move means little, if anything.

A look at the transaction

Prior to being the standalone cannabis business that it is today, Tilray operated as a wholly-owned subsidiary under the control of Privateer Holdings, a private equity company. Seeing the opportunity in this space, Privateer was responsible for Tilray’s earliest growth, but then in 2018 it sought out external funding and this, in turn, eventually led to a listing of Tilray through an IPO later that year. Since then, the business has continued to focus on opportunities in this space, but one downside is that, because of the structure of the arrangement and due to the fact that Privateer owns a 77% piece of Tilray, this works out to around 75 million shares.

The problem with such a large ownership, fundamentally, is that it’s difficult to cash in. If investors begin selling their shares in

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This article was written by

Daniel Jones profile picture
Robust cash flow analyses of oil and gas companies

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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