U.S. Markets See First Cannabis IPO

July 19^th, 2018 saw rapidly growing Canadian marijuana cultivator and processor Tilray Inc. (Nasdaq symbol TLRY) make its debut for trading on the Nasdaq Global Select Market. The IPO (initial public offering) raised $153 million for Tilray and is extremely significant for the burgeoning industry because it marks the first “touching the plant” IPO in the U.S. Prior to now, “touching the plant” companies in either the U.S. or Canada that wished to go public were concentrated on The Toronto Stock Exchange or the extremely popular TSX Venture Exchange. U.S. securities exchange listing requirements continue to prohibit the listing of a U.S.-based medical marijuana company or state legal adult use marijuana company because the U.S. exchanges require that the businesses which list for trading to be conducted in full compliance with the laws of their home country.

Tilray utilized well known U.S. investment bank Cowen and Company as one of its lead underwriters along with Roth Capital Partners and Northland Securities. The shares were priced at $17 per share, above the $14-16 filing range, reflecting strong demand for investors in U.S. capital markets. Remarkably Tilray finished its second trading day at nearly $30 per share, reflecting a robust gain of 75% from the IPO price and giving Tilray a market cap of $2.75 billion for the heretofore money-losing business. Tilray’s IPO filings reported revenues of $7.8 million and an adjusted loss of $5.0 million for its most recently completed fiscal quarter. At an annual run-rate of approximately $30 million in sales, Tilray sells for a robust 100 times sales, which harkens back to some of the highest of high-tech company valuations. In addition to Canada, Tilray has a cultivation business in Portugal and an unusually international business, with operations or agreements to sell in a dozen countries. Tilray checked several other boxes for investors, but having its revenues diversified among both flower, edibles, and other consumables was a major bonus.

Prior to the IPO, Tilray was owned by Privateer Holdings, a cannabis-focused investment fund which is headquartered in Seattle. Tilray is retaining its entire stake but will have super-priority voting rights, which is typically frowned upon by investors. Despite this, investors in the Tilray IPO were willing to look past the voting structure due to the scarcity of U.S.-listed cannabis businesses with perceived strong growth prospects.

Suffice it to say, with the wonderful reception that Tilray received from U.S. investors on Nasdaq, this will not be last cannabis related IPO that occurs in American securities markets. The fact that it occurred at all and was such an amazing success marks a major milestone for the ongoing mainstreaming of the cannabis industry and further erodes remaining bias due to the thicket of legal and regulatory risks that have kept some major U.S. financial institutions and players on the sidelines. The imprimatur of Nasdaq (and what were probably some very interesting discussions amongst individuals at the highest levels of Nasdaq) in approving the listing cannot be overstated. Demand in the U.S. for sizeable cannabis businesses with credible management and well thought-out business models appears to be incredibly strong which should cheer all industry participants and portend massive future capital flows to support the industry’s build-out, capital expenditures and growth.

1. Canopy Growth and Cronos Group, two larger Canadian marijuana businesses preceded Tilray in trading on U.S. markets but they were simply additional listings of securities already trading on Canadian exchanges and did not involve an IPO.
2. Canada nationally is set for full adult use on October 17, 2018.

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