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Tilray and Peter Thiel-backed fund strike deal to release shares over next two years

Brendan Kennedy, CEO, Tilray

Scott Mlyn | CNBC

Tilray struck a deal with its majority shareholder, a Peter Thiel-backed fund, to sell the fund’s stake gradually over the next two years, the Canadian pot company announced Monday.

Privateer Holdings, a cannabis-focused private equity fund, formed Tilray in 2013. It welcomed outside investors in private financing rounds and in an initial public offering last summer. Privateer holds 77% — 75 million shares — of Tilray’s shares outstanding.

Short sellers have bet Privateer would flood the market with Tilray shares, with 24.2% of the float currently shorted, according to FactSet. The deal sets up a schedule and conditions for Privateer’s stake to be released over the next two years, which Tilray hopes will clear the stock overhang.

Tilray will acquire Privateer in a downstream merger, releasing Privateer’s current stake to the market over the next two years in what is expected to be a tax-free deal for the fund’s investors. In the first year following the transaction, shares will be sold to institutional and strategic investors, which Tilray will determine. Remaining shares will be released over the second year at a staggered rate.

“Privateer is giving Tilray a lot of operational flexibility and obviously believes in long-term value of this business and is not pushing to sell its shares as soon as possible, so it’s kind of mutually beneficial, this transaction, for both parties,” Tilray Chief Financial Officer Mark Castaneda said in an interview.

Tilray has signed numerous partnerships, including with brewing giant Anheuser-Busch InBev, retail and consumer brands conglomerate Authentic Brands Group and pharmaceutical company Novartis. Some of its competitors have taken large investments from strategic investors. Alcohol company Constellation Brands purchased a 38% stake in Canopy Growth last year, while tobacco giant Altria bought 45% of Cronos.

“Tilray and the cannabis industry is disrupting many industries, and there is a lot of long-term interest from really all those industries — pharmaceutical, alcohol, (consumer packaged goods) and tobacco — of investing into this space on a long-term basis,” Castaneda said. He said he does not expect all 75 million shares to be sold.

Correction: This story was revised to correct that Privateer’s current stake will be offered to the market over the next two years in what is expected to be a tax-free deal for its investors.