With an eye on US cannabis market, Canadian firm Tilray acquires majority of MedMen debt

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Image of a MedMen retail store

Tilray said Tuesday it acquired a majority of the debt that California-based MedMen Enterprises owes to New York hedge fund Gotham Green Partners and other funds, giving the Canadian cannabis producer a shot to acquire MedMen in the future as well as entry into the U.S. marijuana market in the event of federal legalization.

According to a news release, Tilray bought nearly $166 million in convertible secured notes and warrants.

“The acquisition provides Tilray with a path … to obtain a significant equity position in MedMen through conversion of the notes and exercise of associated warrants,” the announcement noted.

But under the terms of the deal, a full acquisition can only follow federal U.S. marijuana legalization.

“The investment we are announcing in MedMen securities today … is a critical step towards delivering on our objective as we work to enable Tilray to lead the U.S. market when legalization allows,” Tilray CEO Irwin Simon said in the release.

In an interview Tuesday on CNBC’s “Closing Bell,” Irwin added: “What MedMen does for Tilray is that it gives us a great brand. Ultimately, once legalization happens, it gives us the potential to own a great company that we can ultimately take into the rest of the world.”

The deal also gives MedMen an out, however, if the company repays all the existing debt by 2028, before the notes mature.

The transaction is the latest by a Canadian producer positioning itself for possible federal marijuana legalization in the United States.

In June, a subsidiary of Toronto-based Cronos Group purchased an option to acquire approximately 10.5% of Chicago-headquartered PharmaCann, one of the largest privately held cannabis companies in the United States, for $110.4 million (134 Canadian dollars).

The deal, if executed, would give Cronos a toehold in the U.S. with which to expand and follows a similar optional agreement in 2019 between Ontario-based Canopy Growth and New York-headquartered Acreage Holdings.

Tilray’s stake in MedMen came about after once-rival cannabis producers Tilray and Aphria completed their megamerger in May, forming one of the biggest diversified marijuana, hemp and beer companies in the world.

Also Tuesday, MedMen separately announced it had successfully raised $100 million through an investment by Ontario, Canada-based Serruya Private Equity.

According to a news release, the money “will allow MedMen to expand its operations in key markets such as California, Florida, Illinois and Massachusetts and identify and accelerate further growth opportunities across the United States.”

MedMen CEO Tom Lynch called the investment a “game-changer” for the company and predicted it will give the business a “platform for our future growth.”

MedMen trades on the Canadian Securities Exchange under the ticker symbol MMEN and on over-the-counter markets as MMNFF.

Tilray shares trade as TLRY on the Nasdaq and Toronto Stock Exchange.