Privateer To Release Tilray Shares Over Next Two Years

When Tilray, Inc. (NASDAQ: TLRY) shares first began trading the stock blew up in price sparking a rally in all cannabis stocks, but also causing concern over a cannabis stock bubble. One of the main reasons why the stock skyrocketed in those early days was a lack of tradable shares. Privateer Holdings Inc. owned a majority of the shares and they weren’t available to the market until now.

Tilray has signed a non-binding Letter of Intent (LOI) with Privateer that will extend the lock-up on and provide for the orderly release of the 75 million of its shares held by Privateer to Privateer’s equity holders. According to the company, these shares currently represent 77% of Tilray’s total shares outstanding.

“We appreciate the long-term confidence that Privateer has in the Tilray business and we look forward to having their investors as part of our stockholder base,” said Mark Castaneda, Chief Financial Officer of Tilray. “We believe this transaction will give Tilray greater control and operating flexibility while allowing us to effectively manage our public float.”

The statement said that the parties will effect a downstream merger of Privateer with and into a wholly-owned subsidiary of Tilray, with the Tilray subsidiary surviving the merger, and the issuance by Tilray to Privateer stockholders of newly issued shares of Tilray common stock in an equal amount of the shares held. The original Tilray shares that the Privateer owners held will be canceled at the merger’s completion.

Tilray was originally incubated and financed by Privateer as one of its wholly-owned operating subsidiaries before closing a Series A round of capital in February 2018 and then becoming the first cannabis producer to complete an Initial Public Offering on NASDAQ (NDAQ) in July 2018. Some Wall Street analysts were uncomfortable with the lack of liquidity of Tilray shares due to the Privateer ownership and this move would remove those concerns.

Privateer said that earlier this year it distributed its ownership of its three other operating subsidiaries unrelated to Tilray directly to Privateer stockholders, leaving no material assets in Privateer other than the 75 million shares it currently holds in Tilray.

Terms

The company said that “Pursuant to the terms of the proposed transaction, the shares of Tilray stock distributed in the merger would be subject to a lock-up allowing for the sale of such shares only under certain circumstances over a two-year period. During the first year following the closing of the merger, shares will be released only pursuant to marketed offerings and/or block trades to institutional investors or via stock sales to strategic investors, all of which would be arranged at the sole discretion of Tilray. The remaining shares will be subject to a staggered release over the course of the second year following closing. In addition, Privateer has agreed in the LOI to a lock-up on its Tilray shares during the negotiating period for the definitive merger agreement.”

Michael Blue, Managing Partner of Privateer, said: “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.”

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