Shares of Tilray Inc. rallied Wednesday, on the heels of mostly positive analyst comments on the Canadian cannabis company’s announcement to buy a 21% stake in MedMen Enterprises Inc. through the purchase of notes and warrants, to increase its U.S. presence.
Gotham Green Partners, a backer of MedMen, is the seller on the deal.
Tilray’s stock /zigman2/quotes/209129655/composite TLRY -4.15% /zigman2/quotes/226578748/delayed CA:TLRY -3.99% shot up 4.7% in morning trading, paring earlier intraday gains of as much as 7.2%. Shares of MedMen /zigman2/quotes/201940908/composite MMNFF -1.59% , which trade over the counter, climbed 25.2%.
Analyst Aaron Grey of Alliance Global Partners said the transaction could open up an opportunity for Tilray to purchase the remaining portions of MedMen and position it for stronger growth if federal legalization of adult use cannabis takes place. MedMen’s current footprint includes dispensaries in New York and California.
“While an equity interest in a larger multi-state operator (MSO) would have provided TLRY with greater exposure to current U.S. cannabis markets, given the debt overhang on MMEN, TLRY was able to create its position at a more reasonable price,” Grey wrote in a research note.
He maintained his neutral rating on Tilray.
Meanwhile, Oppenheimer & Co.’s Rupesh Parikh reiterated a perform rating on Tilray and said the company recently disclosed a fiscal 2024 revenue target of $4 billion, including a “meaningful” contribution from the U.S. market.
“We continue to look favorably upon management’s efforts to build out a global cannabis platform, but nearer-term we remain sidelined driven by a continued challenging industry backdrop,” Parikh said.”
Tilray’s stock has lost 11.8% over the past three months but has run up 66.3% year to date. In comparison, the Cannabis ETF /zigman2/quotes/213173823/composite THCX -2.45% has gained 14.0% this year while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.11% has advanced 18.3%.