There is increasing optimism that the US government will soon implement marijuana reform, which could eventually lead to legalization. Whether and when legalization will occur is still a mystery, but with the government planning to reschedule cannabis from a Schedule I substance to a less severe Schedule III substance in the near future, investors and analysts alike are optimistic that this will be a could be a step in the right direction. the right direction.
There is one company that is particularly optimistic about these developments Tilray brands (NASDAQ:TLRY). Although it cannot enter the US market without jeopardizing its position in the US market Nasdaq today it is hopeful that this may change in the future.
Acquisitions have played a key role in the strategy in the past, and Tilray recently made a move that could pave the way for a new deal in the future. This time, it could be an acquisition tied to the long-term growth prospects of the US pot market.
Tilray announces an offer worth $250 million
On May 17, Tilray announced that it had filed a prospectus supplement and planned to raise up to $250 million through an at-market offering. The stock offering itself isn’t terribly surprising, especially for a company like Tilray, which isn’t profitable and may need cash to grow its business. Over the next twelve months, it posted a net loss of just under $352 million. But what stands out is the rode for the offer and what Tilray plans to do with the money.
Tilray says it will use the proceeds from the offering “to finance strategic and profitable acquisitions or investments in businesses, including potential acquisitions of assets in the U.S. and internationally, to take advantage of anticipated regulatory improvements or expansion opportunities.”
While companies often use vague language in promotions to suggest that money can be used for general corporate purposes, Tilray went so far as to explicitly say that he does not expect to use it for those reasons. The money it gets from this offering appears to be mainly intended to finance acquisitions.
A takeover involving an American company may not be imminent
Valuations in the cannabis industry have fallen in recent years, and that $250 million could go much further than in recent years. Since 2021, the AdvisorShares Pure US Cannabis ETF has lost almost 80% of its value. There is potential for Tilray to find some good acquisitions regardless of which market it looks at for a deal.
The problem, however, is that even if Tilray finds a suitable company to acquire, the company may not be able to complete the acquisition until a later date. Due to the federal ban on marijuana in the US, Tilray technically couldn’t acquire a company without clashing with the Nasdaq. Even if marijuana is re-listed as a less hazardous substance, this will not change its ban. And while Tilray could use some complicated maneuvering, like rival Canopy growthto create another entity and house US assets there, it has not shown any interest in pursuing such a complex structure in its operations at this point.
The company could invest in other US companies that are not directly involved in touching cannabis plants. But any deal for a real marijuana producer would likely remain pending for years until marijuana becomes federally legal in the U.S. — and there’s no guarantee as to when (or if) that might happen.
Tilray investors should not set their expectations too high
Tilray looking for acquisitions is nothing new for the company. It hinted earlier this year that it will be in acquisition mode to help grow its business. But investors shouldn’t forget that this company has also found some pretty risky partners in the past. Last year it acquired Hexo, a struggling Canadian marijuana producer, and was optimistic about its acquisition potential MedMen Companiesa multi-state marijuana operator that recently filed for bankruptcy and is essentially worthless today.
Whether there is a deal or not, investors should not buy the stock based on this news. It could be years before legalization becomes a reality in the US, and simply pursuing more acquisitions could lead to more stock dilution and a lower stock price. Until the company actually shows that it is on a realistic path to profitability, investors may want to avoid Tilray Brands.
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David Jagielski has no position in the stocks mentioned. The Motley Fool recommends Nasdaq and Tilray Brands. The Motley Fool has a disclosure policy.
Is Tilray Brands preparing for a major American takeover? was originally published by The Motley Fool
