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Tilray to make ‘sizeable’ U.S. deals ‘sooner rather than later’: analyst

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Tilray’s (TLRY.TO)(TLRY) expected expansion into the United States cannabis market will come “sooner rather than later,” according to an analyst who predicts the company will most likely acquire multiple pot producers to meet its sales goals.

“We expect aggressive near term move(s) into U.S. THC,” Owen Bennett of Jefferies wrote in a research note on Tuesday. “We also expect these to be sizeable.”

Last week, the second-largest Canadian cannabis company by market value after Canopy Growth (WEED.TO)(CGC) offered details about its expansion plans as it reported quarterly results. Chief executive officer Irwin Simon said Tilray is exploring acquisitions in the U.S. packaged foods and alcohol sectors, as well as “investments in MSOs (multi-state operators) that would strategically align with Tilray."

“In regards to the U.S. market, what we're looking for is to be able to have a billion to a billion-and-a-half dollars in sales,” he told analysts, while outlining his 2024 goals on a post-earnings conference call on July 28. Simon said these investments would need to give Tilray the option of acquiring 100 per cent of the company upon U.S. federal cannabis legalization.

To hit the bottom-end of this sales target, Bennett says Tilray needs to start buying pot assets in states where cannabis sales are legal “right now.”

“We think it is possible the company will do this via one multi-state operator, but we think a combination of a few multi-state and/or single-state operators is more likely,” he wrote.

Tiray said it had US$488.5 billion in cash and equivalents on hand at the end of its latest quarter. The company is looking to increase the size of its financial war chest by asking shareholders to allow it the option of boosting its pool of available stock. A special meeting of shareholders on June 29 where a vote on this was set to take place was adjourned until Aug. 19, fuelling online speculation that the proposal is not a hit with investors due to dilution concerns.

Last week, Business Insider reported that Simon does not intend to wait for legalization in the U.S. before striking a deal, citing Canopy’s arrangement to buy New York-based Acreage Holdings (ACRHF) that requires "federal permissibility," as an example.

While Tilray has expressed optimism about the recent draft legislation proposed by U.S. Senators Chuck Schumer, Cory Booker and Ron Wyden aiming to federally legalize cannabis, Simon has said he does not expect it to become law in its current form. However, he does anticipate some form of legalization in the next 18 to 24 months.

So far, Tilray’s presence in the U.S. has been limited to Manitoba Harvest, a hemp foods business, and SweetWater Brewing, an Atlanta-based craft beer-maker the company purchased last year.

“Management looks to leverage capabilities that it already has in the market," Cowen analyst Vivien Azer wrote in a research note on Tuesday. "Namely Manitoba on the food side and Sweetwater on the alcohol side, to scale those assets and leverage them to ultimately offer CBD and or THC products when federally permissible.”

She maintains an “outperform” rating on Nasdaq-listed Tilray shares, with a price target of US$23. Bennett has a “buy” rating on the stock, and upgraded his price target from US$23 to US$27 on Tuesday.

The stock fell 1.61 per cent to $14.02 at 12:23 p.m. ET on Wednesday.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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