Tilray Doubles its Capacity in Canada with a Key Acquisition

Wheeling and dealing in the marijuana industry continues as we’ve learned that Tilray Inc (NASDAQ:TLRY) is expanding yet again. The big cannabis stock has entered into an agreement to purchase Natura Naturals Holdings. Natura is based out of Leamington, Ontario and will help boost Tilray’s capacity.

With a greenhouse totaling 662,000 in square feet, it will double the capacity that Tilray has in Canada. Depending on how Natura performs and if it is able to meet certain milestones in the 12 months following the deal, the purchase price could reach $70 million. At minimum, Tilray will pay $35 million at the time of closing. What’s surprising is that this isn’t an entirely all-stock transaction as Tilray will pay $15 million in cash, with the rest being in shares.

Tilray CEO Brendan Kennedy suggests this wasn’t a quick fix, stating that “Through an extensive and thorough search for the right supply partner, we’re pleased to have come to a mutually-beneficial agreement with Natura.” The release also states that Tilray “conducted extensive due diligence on Natura’s cultivation facility and cannabis products.”

The deal is subject to approval but is expected to be completed within 30 days.

Is this just the beginning?

As we continue to hear about cannabis shortages in Canada, it’s likely we’ll see more mergers and acquisitions to come. After all, it’s a quick way to expand without having to secure land and build the necessary facilities to grow cannabis. With many growers and small cannabis companies in operation, Tilray still has many more opportunities to expand across the country.

But it won’t be easy as many marijuana companies will be looking to acquire more space this year in anticipation of edibles being legalized. Further complicating matters is the recently passed Farm Bill, which will create significant opportunities for Canadian cannabis companies in the U.S.

And although it’ll generate a lot of sales, it will also put even more pressure on capacity. Canadian producers are going to have to make some tough decisions as to which market they want to focus on. While the U.S. cannabis industry will be bigger, producers will have to settle on hemp-based products for the time being. Once edibles are legalized in Canada, however, companies will have much more freedom in terms of the products that they will be able to offer.

Finding extra capacity will be key in avoiding this predicament. However, Tilray has shown that it will take its time in finding the right partner and that it isn’t going to rush a deal just to acquire space. The Company has been very strategic in its moves. Last week, Tilray announced a deal with Authentic Brands Group which will allow it to piggyback off some big brand names in order to boost its market share.

Big earnings coming up next month

Tilray is expected to release its earnings in early February. It’ll be the first quarter for the company that includes sales since recreational marijuana became legal in Canada back in October. However, we’ve already seen some big-name cannabis stocks disappoint with weaker-than-expected revenues. If Tilray can just meet expectations, the stock could be poised for a big rally.