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Tilray Teams Up With Authentic Brands, Stock Down on Sell-Off

Zacks Equity Research

Tilray, Inc. TLRY announced a marketing agreement with Authentic Brands Group.

Strategic Details of the Transaction

Canada-based Tilray produces marijuana. Both the companies have entered into a long-term revenue sharing agreement to market and distribute a portfolio of consumer cannabis products within Authentic’s brand portfolio in jurisdictions where regulations permit.

Tilray produces medical cannabis in Canada and Europe. The company is a global pioneer in the research, cultivation, production and distribution of medical cannabis and cannabinoids.

Per the terms, the companies will leverage Authentic’s diverse portfolio of brands to develop, market and distribute consumer cannabis products across the world in markets where it is legal. The initial focus is on marketing opportunities of cannabidiol (CBD) in Canada and the United States, subject to applicable and brand appropriate regulations. Subsequently, Tilray will be the preferred supplier of active cannabinoid ingredients for such products.

Financial Details of the Transaction

Under the agreement, Tilray will pay an upfront fee of $100 million to Authentic and make milestone payments of up to $250 million. Moreover, Tilray will have the right to receive up to 49% of the net revenues from cannabis products bearing Authentic brands, with a guaranteed minimum payment of up to $10 million annually for 10 years, subject to certain commercial and/or regulatory milestones.

Our Take

Tilray has been working to broaden its global footprint. Although the legal market for medical cannabis is in its early stages, it has huge potential.

The agreement with Authentic, which owns more than 50 brands, will enable Tilray to reach new consumers across the entertainment, fashion, beauty, home and health, and wellness markets. Authentic owns a global retail footprint of more than 100,000 points of sale and more than 4,500 branded freestanding stores and shop-in-shops.

Last month, Tilray announced that its subsidiary, Tilray Canada Ltd. has entered into a global framework agreement with the generic arm of Novartis NVS, Sandoz AG, expanding the current collaboration. Under the new agreement, Tilray will collaborate with Sandoz to increase the availability of high-quality medical cannabis products across the world.

The company recently entered into a research partnership with world’s leading brewer, Anheuser-Busch InBev SA/NV BUD to research non-alcohol beverages containing tetrahydrocannabinol (THC) and CBD.

However, shares of the company declined 17.2% on Jan 15, as the company’s initial public offering (IPO) lockup period expired. We note that the company completed its IPO, selling 10,350,000 shares of Class 2 common stock at $17 per share (C$22.45 per share), and obtained net proceeds of $163.6 million after deducting the underwriting discount in July 2018. The sell-off was driven by insiders’ attempts to book profits.

Nevertheless, Tilray has gained 270.1% in the past six months, against the industry’s decline of 11.8%.

 

The cannabis space is grabbing headlines of late. Canopy Growth Corp. CGC and Cronos Group are among the other companies that primarily focus on cannabis products.

Zacks Rank

Tilray currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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