Shares of Tilray (NASDAQ:TLRY) popped more than 20% last month, according to data provided by S&P Global Market Intelligence, after it reached a deal to extend a lock-up period with its largest shareholder.
The Canadian marijuana company signed a nonbinding letter of intent with private equity firm Privateer Holdings, which will extend the lock-up period for up to two years on the 75 million Tilray shares it owns.
As part of the deal, Tilray will acquire Privateer and merge it with one of its subsidiaries. All Tilray shares held by Privateer will be canceled, and Privateer stockholders will receive newly issued shares of Tilray stock subject to a lock-up that allows the shares to be sold only under certain conditions over a two-year period. Over the first year, the shares will be sold only to institutional and strategic investors at the sole discretion of Tilray. The remaining shares will be released from the lock-up on a staggered schedule during the second year following the closing of the merger.
"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," Tilray CFO Mark Castaneda said in a press release. "We believe this transaction will give Tilray greater control and operating flexibility, while allowing us to effectively manage our public float."
Privateer Holdings owns roughly 77% of Tilray's stock. If Privateer decided to exit its position, the additional supply of Tilray stock entering the marketplace could have pressured the cannabis producer's share price. With this risk now lessened, it's logical that investors bid up Tilray's stock price following the announcement of the deal in June.
Tilray can now focus its attention on expanding its international medical cannabis operations and its recently acquired Manitoba Harvest hemp foods business as it works toward reaching profitability in the year ahead.