Tilray (TLRY) - Get Tilray, Inc. Report was rising higher Wednesday as Wall Street analysts voiced support for the Canadian marijuana producer's deal to buy a majority position in senior secured convertible notes of MedMen Enterprise (MMNFF) , the California-based pot company.
Tilray shares were climbing 1.7% to $13.3 at last check, while MedMen was up 1.49% to 27 cents.
Under the terms of the transaction, Tilray and other investors will acquire 75% of MedMen’s outstanding secured convertible notes and 65% of its outstanding warrants for $165.8 million.
Tilray Chairman and CEO Irwin Simon said the company's investment in MedMen "is a critical step towards delivering on our objective as we work to enable Tilray to lead the U.S. market when legalization allows."
Cantor Fitzgerald analyst Pablo Zuanic reiterated his overweight rating and his $19 price target on shares of Tilray, saying in a research note that although "MedMen would not have been our first choice, the deal size and economics work for Tilray at this stage."
"In the late-July-quarter conference call, Tilray management outlined a vision for a $4 billion company (sales) by 2024, and it explained that $1 billion to $1.5 billon of that would come from THC US assets," Zuanic said. "While MedMen is only one small step in that US journey, it lends credence to the vision outlined less than a month ago."
The analyst also upgraded MedMen to neutral from underweight with a 30 cent price target, according to Bloomberg.
Oppenheimer analyst Rupesh Parikh, who rates Tilray perform, said "we continue to look favorably upon management's efforts to build out a global cannabis platform, but nearer-term we remain sidelined driven by a continued challenging industry backdrop."
Alliance Global Partners analyst Aaron Grey maintained his neutral rating on Tilray and lowered his price target to $15 from $17 a share.
"MedMen has been refining its own footprint over the past few years, and the company has flagship dispensaries in CA with the restructured debt & $100 million equity raise providing runway to operate the business w/o the near-term debt overhang," Grey said.
However, Grey noted that MedMen recently sold the majority of its stake in its New York assets and has a heavy concentration in California, "with additional capital likely needed to expand its presence if Federal permissibility is not achieved in the near-term."