Tilray spikes after extending the lock-up period with its largest shareholder
- Tilray shares traded up as much as 13% Monday after the company announced a deal to extend the lock-up period with its main shareholder.
- The deal establishes that Privateer Holdings, which owns 77% of Tilray's shares outstanding, will release shares to the public over a two-year period.
- When the 180-day lock-up expired in January, shares of Tilray tanked.
- Watch Tilray trade live.
Shares of Tilray, the Canadian cannabis producer, were up as much as 13% in early trading Monday after the company announced that it extended the share lock-up period of a major shareholder.
Tilray said in a press release out Monday that it has signed a non-binding letter of intent with Privateer Holdings, Inc., which owns 75 million shares, or 77% of the outstanding total. The letter of intent also establishes that Tilray and Privateer will join in a downstream merger.
The deal means that Privateer can only sell its shares under certain circumstances over a two-year period. In the first year, only Privateer can only sell to institutional and strategic investors determined by Tilray, and at a staggered rate in the second year. This will ensure that Tilray shares will be released to the market over time, instead of all at once.
Tilray CFO Mark Castaneda said that the transaction will give the cannabis producer "greater control and operating flexibility" while allowing the company to manage its float, or the amount of shares that are held by public investors. Tilray has 80.6 million shares outstanding and a float of 22 million shares, according to Bloomberg.
The move is an important one to protect the share price of the company, which last July was the first cannabis company to list on the Nasdaq. Shares plummeted in January, when the 180-day lock-up period expired and early investors decided to cash out on the stock's early success. They were up 328% at the end of the lock-up period, and have since fallen by 62% to $43 apiece.
"We believe this structure will maximize overall returns for our visionary investors in a tax-efficient manner while giving Tilray the operating flexibility it needs to continue to be a leader in the rapidly emerging global cannabis industry," said Michael Blue, managing partner of Privateer, in a company statement. The Privateer shares offered to the market are expected to be a tax-free deal for investors.
"The transaction effectively flips the control of stock from Privateer to TLRY, and provides TLRY increase ability to manage its public float," wrote Cowen analysts Vivien Azer and Steven Schneiderman in a note out Monday. They maintained their "outperform" rating and $150 price target.
Shares of other cannabis companies were also trading up in early trading. Cronos was up more than 3%, Aurora Cannabis traded up 2.36% and Canopy Growth traded up 2.23%.
Tilray is down 45% this year.