Canadian cannabis and beverage alcohol company Tilray Brands is preparing for marijuana reform in the United States with plans to raise up to $250 million through an at-the-market (ATM) equity program.
The net proceeds of the equity raise won’t be used for operating expenses, according to a news release, but rather “to fund strategic and accretive acquisitions or investments in businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities.”
Tilray share prices (trading as TLRY on the Nasdaq and Toronto Stock Exchange) increased 11% over the past month in the wake of news that marijuana will potentially be moved from Schedule 1 to Schedule 3 in the Controlled Substances Act.
“It’s good to raise money in a rising share price market,” Mitchell Osak, president of Toronto-based Quanta Consulting, told MJBizDaily.
“Tilray has big, global ambitions that require substantial amounts of capital to realize.
“An ATM financing is advantageous to the company in terms of flexibility, capital raised and timing.”
Cannabis ‘firms and assets for sale’
Tilray’s equity distribution agreement with TD Securities – headquartered in Toronto with offices in the U.S. – and New York-based investment banking firm Jefferies allows those entities to sell the company’s common stock at market prices.
Osak noted that the financing is dilutive, which will likely annoy investors.
But whether the financing is a good idea won’t be clear until it’s known how much is raised through the ATM program and what return the company gets on the investments it makes with the proceeds, Osak said.
“There are many solid U.S. and Canadian cannabis firms and assets for sale,” he said.
“Tilray can pick up these assets on the cheap. The company could also choose to buy into the fast growing hemp THC (delta-8) beverage business as well as burgeoning cannabis firms in the emerging EU market.”
Renewed interest
The ATM announcement isn’t Tilray’s first foray into U.S. cannabis.
The company acquired a majority position in MedMen Enterprises’ amended convertible notes for $165.8 million in 2021.
MedMen has now filed for bankruptcy in Canada.
Osak said most retail investors would likely say the ATM could be a bad move because of the dilutive effects and that the share price is still low, hovering around $2.
And with cannabis stock prices so low, more operators have been raising capital through debt, albeit at high interest rates.
But members of Tilray management own stock, too, Osak said.
“Ultimately, the answer comes down to whether you believe in Tilray’s strategy, management’s ability to execute and whether their growth investment bets can pay off in a reasonable time frame, given political and regulatory uncertainty, key macroeconomic fundamentals like high interest rates and the fact that many things in this industry take longer than expected (e.g., reaching market growth and attainable size after accounting for the illicit market),” Osak said.
“To wit, time is money.”
Alcohol sales driving revenue
Tilray posted net revenue of $188.3 million for the third quarter ending Feb. 29, a 30% increase from $145.6 million in revenue during the same quarter in 2023.
More than $54 million of that revenue came from its beverage alcohol sales.
The company also reported a net loss of $105 million for the quarter and lowered its financial guidance from $68 million-$78 million to $60 million-$63 million.
Chief Financial Officer Carl Merton also said Tilray won’t meet its previous guidance of achieving positive adjusted free cash flow for the full 2024 fiscal year.
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Long time coming
A Tilray spokesperson in February 2023 attributed the company’s buying spree of U.S. alcohol brands to the slow pace of federal legalization south of the border.
“In the U.S., we are not simply waiting for federal legalization of cannabis,” the spokesperson told MJBizDaily.
“We’ve invested in leading and profitable (consumer packaged goods) brands across craft beverage-alcohol and wellness consumer products.”
Tilray’s acquisitions include Breckenridge Distillery, Manitoba Harvest, Montauk Brewing Co. and SweetWater Brewing Co.
Kate Robertson can be reached at kate.robertson@mjbizdaily.com.
