Following its recent merger with fellow Canadian cannabis producer Aphria, Tilray (TLRY) made no secret of its ambition to gain a foothold in the lucrative U.S. pot market, even before federal legalization comes into play.
The company came good on its promise last week when it announced an investment in MedMen (MMNFF). Tilray – along with partners – has purchased the optionality on convertible notes for $165.8 million, with Tilray holding 68% of notes/warrants. This should equate to a 21% stake in the company when converted to stock. There’s also an option to acquire the remaining notes which could ultimately lead to a majority stake in the MSO.
The move is no surprise to Jefferies analyst Owen Bennett, who has often cited U.S. optionality as key for Canadian LPs’ long-term success.
But is MedMen the right company to acquire given its well-documented financial issues? What’s more, the company’s reputation is somewhat tarnished, and it is not considered one of the most appealing MSOs. Bennett, however, thinks it is a good move.
“All its financial troubles aside, the MedMen brand remains recognizable in both retail and its own private label products,” the analyst said. “Such brand equity/recognition is potentially extremely valuable in a currently highly fragmented industry.”
Furthermore, the company’s footprint expands to 6 states, including the world’s biggest pot market, California, while the financials also seem to be “on the right trajectory again.”
But Bennett also believes the move will prove even a better source of value “once combined with additional cultivation assets.” The analyst thinks the MedMen purchase is only the first shot fired, and anticipates Tilray will go on a U.S. shopping spree, with more action to come on this front.
“Given the importance of retail in taking market share in the US (ensures shelf space, improves accessibility, supports building of brand recognition/ equity), if Tilray was to go and acquire additional single-state/multi-state operators, laying their brands over the MedMen retail platform could prove very valuable,” the analyst summed up.
Accordingly, Bennett rates Tilray a Buy, backed up by a $27 price target. This target suggests the stock will be double a year from now. (To watch Bennett’s track record, click here)
The Street’s average price target is not quite as majestic, yet at $19.33, the figure still represents potential one-year gains of 50%. Ratings, however, are decidedly more mixed; the stock ekes out a Moderate Buy consensus rating, based on 4 Buys vs. 6 Holds. (See Tilray stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.