Cantor Fitzgerald Says Tilray’s Stake In MedMen One Of The Steps In US Journey, Could Be Getting Close To Altria

Market Trading EssentialsAugust 18, 2021

2 minutes read

Canadian cannabis giant Tilray, Inc. NASDAQ: TLRY) announced Tuesday it has acquired the majority of the outstanding senior secured convertible notes of MedMen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) that were originally held by certain funds affiliated with Gotham Green Partners, LLC and other funds. The transaction is valued at $165.8 million.

What’s In It For Tilray? For starters, the investment provides Tilray with a potential accelerated path into the U.S. cannabis market upon federal legalization via a significant equity position in MedMen through conversion of the notes and the ability to exercise associated warrants.

Many believe federal cannabis legalization could happen sooner rather than later and Tilray’s chairman and CEO Irwin D. Simon is among them.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic reiterated an ‘Overweight’ rating on Tilray’s stock, keeping the price target of $19 unchanged.

The Thesis

Tilray management previously shared the vision of reaching $4 billion in sales by 2024, out of which $1.0-1.1.5 billion would come from THC U.S. assets.

“While MedMen is only one small step in that US journey (~$120Mn in sales), it lends credence to the vision outlined less than a month ago,” explained Zuanic.

According to the analyst, some big Canadian companies are often being assessed and valued based on the management vision, instead of on near-term fundamentals. “Investments in them by CPG companies (Canopy Growth (NASDAQ: CGC), Cronos (NASDAQ: CRON)), .2Bn cash war chests (Sundial (NASDAQ: SNDL)), and/or opportunistic deal making outside Canada (Tilray), all help substantiate and validate those aspirations.”

While MedMen is not the analyst’s first choice, he confirms that the deal value and economics are good for Tilray at the moment – “it gives up 2% of its market cap, and the stock will likely rerate by more than that.”

This deal shouldn’t be analyzed separately, considering that the Sweetwater Brewing led to a much bigger deal, notes Zuanic.

Getting Closer To Altria?

“We can only speculate about what comes next, but Tilray management has implied it also wants US cultivation and brands; whether this will mean a vertically integrated operator or a brand remains unclear at this stage.”

The analyst further pointed out that Green Gotham Partners is affiliated with U.S. cannabis operators like PhramaCann, iAnthus (OTCPK: ITHUF) and Cronos – partly owned by Altria (NYSE: MO).

“Could all this bring Tilray closer to Altria? We would say this would only be one of several scenarios or permutations that could be highlighted.”

In conclusion, Zuanic noted that transactions like this should boost sentiment towards U.S. cannabis stocks, recalling that AdvisorShares Trust AdvisorShares Pure US Cannabis ETF (ARCA: MSOS) had lost 20% over the last three months, compared to a 7% gain in the SPDR S&P 500 (ARCA: SPY).

The Price Action

Tilray’s shares closed Tuesday market session flat at $13.12 per share.

Photo: Courtesy of GRAS GRÜN on Unsplash

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