This is a copy of the July 22nd edition of our weekly Newsletter, which we have been publishing since October, 2015.
We will be the first to admit that we didn’t expect Tilray to top out post-IPO at almost $32 per share, well above the IPO price, but we did think the deal was priced at the right price ($17). With 101 million fully-diluted shares, the market cap is at US$3 billion, which seems out of line with reality. Tilray ranks 5th in terms of Canadian LP quarterly sales (as of 3/31), behind Canopy Growth, Aurora Cannabis, MedReleaf and Aphria, reporting sales of US$7.8 million, but its adjusted EBITDA of -US$5.0 million in Q1 was substantially lower than MedReleaf’s and Aphria’s.
So, why did Tilray’s IPO do so well? First and foremost, investors should appreciate that the float consists only of IPO shares, which were priced slightly higher than the initial talk of $14-16. Second, the listing on NASDAQ as the only exchange was a smart move that boosted the demand by dramatically broadening the audience of potential investors. Third, the company didn’t have any glaring red flags in its prospectus. Fourth, Tilray checks all of the boxes: Global, strong in extracts, diversified geographically and by mode of production and plenty of distribution contracts with provinces. We think a final factor was that the company gave robust guidance for its Q2 results, suggesting sales of US$8.8-9.2 million, a gain of 80% from year-ago levels at the mid-point.
At US$3 billion, Tilray trades at a big premium to its closest peers, thanks to overly aggressive traders. MedReleaf has a market cap of US$2.1 billion, while Aphria is valued at US$1.8 billion. Both of these companies had sales equal to or greater than Tilray’s and also check all the boxes, though we note that Tilray has beaten both in terms of penetrating the market for extracts. CannTrust, which reported sales of about US$6 million in Q1 (about 76% of Tilray’s), has a market cap of just US$563 million (19% of Tilray’s). CannTrust, in our view, also checks the boxes like Tilray but has actually done a better job in terms of extracts.
While the valuation seems high relative to peers, especially in light of the large capital raise done earlier this year at $7.10, the float of stock is likely to remain tight for a while. Those 7.8 million shares sold in February and March will enter the float in no more than 180 days (possibly as early as 90 – we reached out to Tilray for clarification on the timing but have not yet heard back). The balance of the shares are held primarily by Privateer Holdings, so the stock won’t see the selling we saw out of other higher profile names with groups of pre-public investors, like Cannimed, CannTrust and MedReleaf. The company could, though, sell additional shares in a new offering, and we note that with part of the IPO cash earmarked for debt repayment and a substantial amount for capital investment, Tilray will likely raise more funds over time if it wants to be competitive with its largest peers.
Our big takeaway is that the demand for promising cannabis companies by U.S. investors is very strong. Not only has Tilray been well received, but recent new deals by MedMen and GTI have raised the valuation bar for U.S. cannabis operators. Successful go-public transactions like these are likely to encourage other leading companies to go public as well. We expect this to be the case especially in the U.S. and point our readers to the two large transactions in Nevada announced this week. We continue to believe that the number of publicly-traded U.S. operators with substantial revenue is going to increase dramatically over the balance of the year.
To learn more about iAnthus Capital Holdings, visit the company’s Investor Dashboard that we maintain on its behalf, click the blue Follow Company button in order to stay up to date with their progress.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Aphria Acquires Latin American and Caribbean Cannabis Assets for $193 million in Stock from Scythian Biosciences
- Aurora Cannabis to Transition E-Commerce Platform to Shopify
- Cannabis Lifestyle Company Green Growth Brands Announces $56.75 Million Nevada Deal
- Guest Post: Cannabis Loyalty Programs Pay Off: A Close Look at Consumer Purchasing Habits
- Exclusive: Cannabis Stock Potnetwork Holdings SEC Filing Raises Questions
- Cronos to Build Massive Greenhouse Facility in Ontario
- Emblem Inks Supply Agreement and Invests $3 Million for 5% Stake in Cannabis Cultivator Natura Naturals
- Leading Nevada Cannabis Company Silver State Sells to Canadian Public Company C21 Investments
- Maricann Gains Cannabis Manufacturing License in Malta
- MPX Enters California Cannabis Extracts Market
- Multi-State Cannabis Operator Cresco Labs Expands Into Several Western States
- Exclusive: PharmaCann’s Scalable Platform is Poised for Major Growth Over the Next 12 Months
- TGOD Announces Plans to Spin Out Company to Pursue Global Cannabis Opportunities
- Tilray Prices $153 Million NASDAQ IPO at $17 per Share
Come meet some of the leading public cannabis companies in Toronto on August 16th & 17th:
Aphria, Aurora Cannabis, CannaRoyalty, CordovaCann, Emblem, Golden Leaf, Harvest One, iAnthus, Invictus, Khiron Life Sciences, Liberty Health Sciences, LiveWell, Maricann, Medicine Man Technologies, MedMen, Organigram, Tidal Royalty and Terra Tech.
As well as private companies on the path to becoming public:
4Front, Avicanna, Bridging Finance, Compass Cannabis, Cresco Labs, MediPharm Labs, MJardin, New Frontier, Province Brands, Rubicon Organics and Sail Cannabis.
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Alan & Joel