Tilray Lowers the Bar for Merger With Aphria

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Dry cannabis flowers in the packaging room at an Aphria facility in Ontario, in mid January.

Annie Sakkab/Bloomberg

The Canadian cannabis operator


may be struggling to reach the threshold of shareholder votes required to complete its proposed merger with


a Canadian conglomerate that sells alcohol and weed, and distributes medical drugs in Europe.

In December, Aphria (ticker: APHA) and Tilray (TLRY) announced a plan to merge the two businesses. Aphria would effectively conduct a reverse takeover of Tilray, taking its corporate name and its listing on the Nasdaq, with a 62% interest in the combined company. At the time, the reception to the merger was generally positive.

This week, however, it appeared as though Tilray may be having difficulty getting enough votes to approve the deal. Early Thursday, the company postponed the vote for two weeks. It was originally scheduled for Friday, but Tilray moved it to April 30.

People familiar with the matter said Thursday that Tilray had yet to garner enough votes for the deal to go ahead. In response to a query from Barron’s, Tilray said it was moving the vote because the company has a large retail shareholder base, and needed time to ensure they had “every opportunity to have their voices heard and support the transaction.”

Data from FactSet shows that 70% of stock is held by investors who have not disclosed their holdings. That group includes institutional investors with smaller stakes, but in the case of pot companies, many unidentified holders are retail buyers. According to Bloomberg, investment advisors hold 46% of shares outstanding, while individuals, including insiders, have 37%.

Early Friday, Tilray made a second move that will move the deal toward completion. The company issued a press release that said the board of directors was reducing the number of shareholders required to hold a special meeting to one-third of the total voting power from a majority.

Aphria shareholders overwhelmingly approved the deal Thursday.

Tilray’s largest shareholder is Chief Executive
Brendan Kennedy,
who owns more than 10 million shares, or about 5.7% of those outstanding, according to Bloomberg data. As with many cannabis companies, several exchange-traded funds have significant stakes in the business.

Kennedy, along with
Christian Groh
and Michael Blue, founded the cannabis-focused private- equity company Privateer Holdings. When Tilray went public at $17 in 2018, Privateer held a controlling interest in the weed company, through its Class 1 shares. The shares held by Privateer are slowly being unlocked and released to Privateer’s own investors.

Blue and Groh hold respective stakes of 2.6% and 2.2% in Tilray. The California Public Employees’ Retirement System, the state’s pension fund, also has a small position in Tilray, as do several long-short hedge funds, among other investors.

Shares of Tilray ticked up 0.3% Friday to $16.99, as the Cannabis ETF (THCX) fell 0.8%.

Aphria stock advanced 2.7% to $13.96 in Friday trading, but fell 15% this week after it reported disappointing fiscal third-quarter results. Most of Aphria’s quarterly revenue came from its drug-distribution business. Management reported revenue of C$87 million ($69.58 million) for the segment, while Aphria sold C$51.7 million worth of cannabis and logged alcohol revenue of C$14.8 million.

Write to Max A. Cherney at [email protected]

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