Canadian cannabis and beverage alcohol company Tilray Brands is gearing up for potential marijuana reform in the U.S. by announcing plans to raise up to $250 million through an at-the-market (ATM) equity program.
Purpose of Equity Raise
According to a news release, the net proceeds from the equity raise will not be allocated for operating expenses but will instead be directed towards funding strategic acquisitions or investments in businesses. This includes potential acquisitions of assets both in the U.S. and internationally, with the aim of capitalizing on expected regulatory advancements or expansion opportunities.
Market Response
Tilray’s share prices (TLRY on the Nasdaq and Toronto Stock Exchange) have surged by 11% over the past month following the news of potential rescheduling of marijuana from Schedule 1 to Schedule 3 in the Controlled Substances Act.
Mitchell Osak, president of Toronto-based Quanta Consulting, views this move positively, citing the advantage of raising funds in a rising share price market and emphasizing Tilray’s global ambitions that necessitate substantial capital.
Dilutive Financing
While the equity distribution agreement with TD Securities (USA) and investment banking firm Jefferies enables the sale of common stock at market prices, Osak notes that the financing is dilutive, potentially irking investors. However, the success of this strategy hinges on the amount raised and the return on investments made with the proceeds.
Acquisition Opportunities
Osak highlights the availability of numerous cannabis firms and assets for sale in both the U.S. and Canada. He suggests that Tilray could leverage this opportunity to acquire assets at favorable prices, including ventures in the emerging EU market and the burgeoning hemp THC (delta-8) beverage business.
Financial Performance and Outlook
Tilray’s third-quarter net revenue of $188.3 million reflects a 30% increase from the same period in 2023, with a significant portion attributed to beverage alcohol sales. However, the company reported a net loss of $105 million for the quarter and revised its financial guidance downward.
Evaluating the Strategy
Osak emphasizes the importance of belief in Tilray’s strategy and management’s execution capabilities. Despite potential concerns regarding dilution and low share prices, he suggests that Tilray’s growth investment bets could yield returns over time, contingent upon various factors including regulatory developments and market dynamics.
Long-Term Vision
Tilray’s move to raise funds and explore strategic acquisitions underscores its proactive stance amidst evolving regulatory landscapes. With an eye on both cannabis and beverage alcohol sectors, Tilray aims to position itself strategically for potential growth opportunities in the dynamic market.
