British Columbia-based cannabis giant Tilray Inc. (NASDAQ: TLRY) just signed a letter of intent to release 75 million shares currently held by main shareholder Privateer Holdings, a company backed by venture capitalist Peter Thiel. 

In what is effectively a downstream merger, those shares will be released to Privateer’s equity holders and Privateer will become a subsidiary of Tilray. In exchange, newly registered shares of Tilray will be issued to Privateer stockholders on an equal basis.  

The news marks a significant turn of events for the two companies, as Tilray was initially formed by Privateer before the company saw its initial public offering on the NASDAQ exchange last year. 

Tilray’s stock spiked significantly this morning after the deal was announced, currently up by 14% and trading at a price of $44.58 as of this writing. 

According to an article from CNBC featuring an interview with CFO Mark Castaneda, the merger is expected to be a tax-free deal for Privateer’s investors. Discussing the deal and its tax perks, Privateer Managing Partner Michael Blue commented: 

We believe this structure will maximize overall returns for our visionary investors in a tax-efficient manner while giving Tilray the operating flexibility it needs to continue to be a leader in the rapidly emerging global cannabis industry.

While that letter of intent for this proposed transaction is non-binding, the deal has already been approved by a special committee formed through Tilray’s board of directors, as well as by Privateer’s board. Final stockholder approval from both companies will still need to be acquired before a definitive agreement is entered. 

If the deal is approved, shares of Tilray distributed under the terms of the agreement will be subject to a lock-up over the course of two years.  

For the first year, Tilray will have sole discretion to arrange marketed offerings or block trades to strategic investors. During the second year following the deal’s completion, shares will be subject to a staggered release schedule. 

In other recent company news, Tilray hosted a ribbon cutting ceremony for a Cantanhede, Portugal-based greenhouse facility in late April, and that location just received Good Manufacturing Processes certification last month.  

After seeing a $20 million investment from the company, that Portuguese site will now distribute medical marijuana throughout the European Union. 

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