Why is Marijuana Stock Tilray Soaring 20% Today?

Tilray shares surged more than 13% Monday in premarket trade after the Canadian pot company announced it struck a deal with its majority shareholder, a cannabis company backed by venture capitalist Peter Thiel, to sell the fund’s stake gradually over the next two years.

Privateer Holdings, a private equity fund concentrated in the cannabis sector, formed Tilray in 2013 and took it public last summer. Thiel’s Founders Fund was an early backer of Privateer in 2014.

Privateer holds 77% — 75 million shares — of Tilray’s outstanding shares worth roughly $2.91 billion at Friday’s closing price of $38.80. That stake was worth more than $16.05 billion at the company’s peak price of $214.06 in September.

Short sellers have bet Privateer would flood the market with Tilray shares, with 24.2% of the float currently shorted, according to FactSet. The deal sets up a schedule and conditions for Privateer’s stake to be released over the next two years, which Tilray hopes will clear the stock overhang.

Tilray will acquire Privateer in a downstream merger, releasing Privateer’s current stake to the market over the next two years in what is expected to be a tax-free deal for the fund’s investors. In the first year following the transaction…

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