Tilray Shares Jump on Deal to Take Control of Biggest Holder

(Bloomberg) -- Tilray Inc.’s stock jumped after its largest shareholder agreed not to sell its stake over the next two years except to big institutions or strategic partners in a deal that will also see it become a subsidiary of the cannabis company.

Privateer Holdings Inc., which owns about 77% of Tilray’s outstanding shares, has signed a non-binding letter of intent that will allow it to sell its holdings only under certain circumstances over a two-year period after it merges with the pot company. During the first year after the merger closes, Privateer can only sell blocks of shares to big institutions or large companies looking to make a strategic investment in the industry, and then only at the discretion of Tilray. In the second year, the remaining shares will be subject to a staggered release. Tilray’s stock gained 17% in pre-market trading Monday.

The deal removes any concern that Privateer could flood the market with Tilray stock, and gives Privateer’s investors a tax-free way to benefit from its stake in the $3.8 billion cannabis firm, the companies said Monday.

“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 Chief Financial Officer Mark Castaneda said in a statement. “We believe this transaction will give Tilray greater control and operating flexibility, while allowing us to effectively manage our public float.”

The deal essentially reverses Tilray’s original relationship with Privateer, which incubated and financed the Nanaimo, British Columbia-based company as one of its wholly owned operating subsidiaries before it went public in 2018. Tilray Chief Executive Officer Brendan Kennedy co-founded Privateer and is its executive chairman.

Privateer will now become a wholly-owned subsidiary of Tilray. Privateer has distributed its other holdings to its investors, meaning its only remaining material asset is its stake in the pot company.

The merger and subsequent lockup must be approved by the shareholders of both Privateer and Tilray.

(Adds share move in headline, 1st and 2nd paragraphs.)

To contact the reporter on this story: Kristine Owram in Toronto at [email protected]

To contact the editors responsible for this story: Brad Olesen at [email protected], ;David Scanlan at [email protected], Jacqueline Thorpe

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