Tilray, Inc. (TLRY) shares rose nearly 20% in pre-market trading after the company signed a non-binding letter of intent with Privateer, which holds about 77% of the company's total outstanding shares, to extend its lockout period and provide for an orderly release of its 75 million shares. The two companies plan to merge after Privateer divested its holdings in other assets over the past several quarters.
Privateer agreed to lock up its shares during the negotiation period for the definitive merger agreement. During the first year following the merger, the company will release shares via marketed offerings to institutional or strategic investors. The remaining shares will be sold over the course of the second year on a staggered basis to reduce market impact. The move was designed to address dilution concerns in the market.
Last quarter, the company reported $23 million in total cannabis revenue on 3,012 kilograms of equivalents sold, which was a significant triple-digital increase over the prior year. However, Tilray's net loss expanded to $30.3 million, or 32 cents per share, as the company invested in capacity. The market for cannabis remains bullish in the near term, but increasing supply could lead to long-term commoditization.
From a technical standpoint, the stock broke out from trendline resistance toward its 50-day moving average at $49.49. The relative strength index (RSI) moved toward neutral levels of 48.29, but the moving average convergence divergence (MACD) experienced the start of a bullish crossover. These indicators suggest that the stock could have more room to run, although the prior trend remains decidedly bearish.
Traders should watch for a breakout from the 50-day moving average at $49.03 over the coming sessions, which could lead to a move toward the 200-day moving average at $82.93 after the stock's prolonged downtrend. If the stock breaks back down into its prior price channel, it could retest lows at around $34.25.
The author holds no position in the stock(s) mentioned except through passively managed index funds.