Canada’s Tilray is Betting on US Cannabis Legalization

Canadian cannabis is expanding its footprint on the US side of the border. Earlier this week, Tilray (TLRY), which was already strengthened by a merger with Aphria in May, announced the purchase of $165.8 million in convertible notes from Gotham Green Partners. Once converted to stock, Tilray will own a minority interest in US-based Medmen (MMNFF).

There’s a lot to unpack in this deal. Medmen also announced a private equity investment of $100 million from Serruya Private Equity shortly before the Tilray move, so there appears to be some serious maneuvering going on here. Do they know something we don’t? Is federal legalization of cannabis coming soon or is this all just positioning?

Medmen currently has cannabis retail operations in California, Nevada, Illinois, Arizona, Massachusetts, and Florida. Their geographical positioning could facilitate expansion on both coasts and in the American midwest. With the new Canadian backing from Tilray, they could be a hidden gem on the OTC market. It’s certainly worth watching.

Canadian Companies Poised for Profit in US Cannabis

Several companies from the Great White North have spent the past several years positioning themselves for US federal legalization of cannabis. At this point, that action seems inevitable, so I’m buying stock in these companies before the marijuana bull market arrives in full force. There are three that stand out from the rest of the crowd.

  • Tilray (TLRY): At first glance, Tilray doesn’t look like a major mover. They’re down 51% over the past six months and opened this morning at $12.75. To me, they’re priced to buy. In addition to the Apria merger and the latest move on Medmen, Tilray has also partnered with Anheuser-Busch to develop cannabis beverages.
  • Cronos (CRON): Cronos has been selling cannabinoid oils and gummies in the US since they acquired Lord Jones in 2019. Their 2020 sales on those products totaled $9.5 million and their share price went up 15% last year. Like Tilray, they also have a US partner. Tobacco giant Altria invested $1.8 billion into them in 2018.
  • Canopy Growth (CGC): Chosen earlier this year by the Motley Fool as the best-positioned Canadian cannabis company for US expansion, Canopy Growth partners with Acreage Holdings, which has dispensaries in thirteen states, and Constellation Brands, a US developer of cannabis beverages. I’m ranking them third on my list.

I also had high hopes for Aurora Cannabis (ACB), but they’re down 30% this year and billionaire owner Nelson Peltz hasn’t made any moves to secure a US distribution partner. The dominoes will fall quickly when the Senate comes through with the final vote, so having infrastructure already in place will be critical. I’m removing ACB from my list because of that.

The US Senate Holds the Keys to the Kingdom

With Chuck Schumer sponsoring the Cannabis Administration and Opportunity Act (CAOA), the US government is currently closer than ever to federal legalization, but nothing is guaranteed. Voting on the bill is expected in September at the earliest. If passed, it will remove marijuana from the scheduled substances list, essentially ending federal prohibition.

The American public is resoundingly in favor of legalization, with 91% believing that either medical or recreational use should be decriminalized. 60% of them think both should be legal. That number includes President Joe Biden and US Senators from both parties. The US House of Representatives has already passed their own version of federal legalization.

Canadian companies cannot officially own stock in US cannabis retailers and growers until federal legalization passes. That’s the reason Tilray took the convertible notes approach. The US Senate holds the keys to the kingdom for them and other Canadian companies looking to gain a foothold in US cannabis. Keep an eye on this story as it develops.

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About the Author

Canada’s Tilray is Betting on US Cannabis Legalization

Kevin Flynn

Kevin D. Flynn is InvestorsPrism's Editor-Financial Markets. A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.