A deal by Tilray, Inc. (TSX: TLRY) (Nasdaq: TLRY) to acquire a significant stake in a leading American cannabis retail brand signals more aggressive moves by the Canadian weed giant to cement its presence south of the border.
On Tuesday, in a partnership with other investors, Tilray said it acquired the majority of the outstanding senior secured convertible notes of MedMen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) worth about US$165.8 million. The notes were originally held by LLC Gotham Green Partners (GPP).
Tilray will exchange about nine million of its shares to GGP.
As a result, Tilray could have around a 21 per cent stake in MedMen through the conversion of notes into equity following cannabis legalization in the U.S., or sooner if Tilray chooses to waive that condition.
If Tilray hasn’t been given stockholder approval by Dec. 1, 2021, GGP can opt for cash instead of Tilray shares.
MedMen has 25 U.S. locations in major cities like L.A. Boston, Chicago, and Las Vegas as well as a significant position in California, the world’s largest weed market.
MedMen was once considered one of the most valuable U.S. retailers, but the high didn’t last long and the company’s leadership has been sharply criticized.
In 2018, the company was valued in the billions, but it soon fell drastically after reporting steep losses and hefty payouts to top management.
Read more: Execs shouldn’t get big payouts until companies are cash flow positive: Ryerson prof
Read more: Tilray 1.0 quietly discloses first-quarter US$341M loss
While its share price was soaring at the end of 2018 at a high of $8.50 a share on Oct. 19, financial woes amplified over 2019 and MedMen’s valuation steadily dropped to where it sits today at $0.34 a share and a market cap of just $234.72 million.
Tilray’s stock is up 0.3 per cent to $16.53 on the Nasdaq.
$TLRY presumably couldn't convince a functioning $MSO to take their $$ at these valuations, so they're paying ~US$120M (9M x $13.12) for ~21% of $MMEN (before dilution) & amending terms, bailing-out both GGP & MMEN.
Implies $MMEN equity $560M / EV $710M = 5.5x sales w/neg EBITDA!— Max Mausner (@MAU5NER) August 17, 2021
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