The acquisition of Natura Naturals might be the spark that will strengthen Tilray Inc (NASDAQ:TLRY) sentiments in the market after a steep pullback. The stock has resorted to trading in a downtrend after a plunge from record highs of $300 in September. However, the stock could soon turn bullish as the acquisition is set to strengthen the company’s prospects in the multibillion-cannabis sector.
With the acquisition, the Canadian pot producer is set to gain access to a vital asset set to double its cannabis production capacity. Natura Naturals should strengthen the company’s ability to supply high quality branded cannabis products as demand in the Canadian market continues to increase.
The acquisition of Natura Natural comes just days after Tilray signed a $100 million revenue-sharing deal with Authentic Brands. The agreement is for marketing and distribution of the company’s cannabis products.
Even as Tilray remains a fundamentally attractive investment, its share price has continued to edge lower in recent months. The stock is currently trading close to a key support level at the $63 a share level. A breach of the critical support level could open the door for further slides back to 52-week lows.
However, if recent price action activity is anything to go by, then Tilray looks set to start climbing the ladder from current lows. A rally followed by a close above the $88 a share level, should open the door for the stock to make a run for the psychological $100 a share level.
The stock needs to rally and stabilize above the $100 a share mark, to affirm the emerging uptrend and avert concerns of a further slide after the steep pullback.
What Does Tilray Do?
Tilray is one of the biggest companies focused on the research, cultivation, and processing of medical cannabis. The company serves tens of thousands of consumers and patients in 12 different countries in five continents.
Natura Naturals Acquisition
The acquisition of Natura Naturals is a groundbreaking catalyst that will strengthen the stock’s sentiments in the market, after underperforming in recent months. The stock and cash transaction is made up of $15 million in cash and 20 million in Tilray stock. The deal should close in the next 30 days.
Natura Natural comes into the deal with a 662,000 square foot greenhouse cultivation facility expected to, more than double Tilray production capacity. According to analysts at Cowen, the merger will allow Tilray to be in a position to address the ever-growing demand for marijuana in the recreational market.
“We’re very pleased to have an agreement in place that allows us to expand our capacity to supply high-quality branded cannabis products to the Canadian market. Through an extensive and thorough search for the right supply partner, we’re pleased to have come to a mutually-beneficial agreement with Natura,” said CEO Brendan Kennedy.
Authentic Brands Distribution Deal
Even as Tilray moves to strengthen its cannabis production capacity, the company is also eyeing opportunities for strengthening its revenue streams. The company has since signed a revenue sharing agreement with Authentic Brands Group.
With the agreement, the company should be able to leverage ABG’s retail footprint that is made up of 100,000 points of sale. Tilray should be able to target a wider target market in jurisdictions where cannabis is legal. The initial focus will be on marketing opportunities for cannabidiol in Canada and the U.S.
Under the terms of the agreement, Tilray is to pay $100 million as upfront fees to Authentic Brands followed by milestones of up to $250 million. In return, the company will receive up to 49% of net revenues on all Authentic cannabis brands sold. The deal guarantees a minimum of $10 million a year for the next 10 years.
Tilray has made important strides on its bid to strengthen its global footprint. The acquisition of Natura Naturals opens the door for the company to enhance its production capacity to meet the ever-growing demand for cannabis products.
A strategic partnership with Authentic Brands will allow the company to reach out to new customers across various industries in need of cannabis products. The company has also entered into a global framework agreement with a subsidiary of Novartis NVS to increase the availability of its high-quality medical cannabis across the globe.
For early movers, Tilray is an exciting pick after the recent steep pullback. Underlying fundamentals are inching higher signaling the stock is about to break out.
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Disclosure: We have no position in TLRY and have not been compensated for this article.