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Tilray is a meme
Word of the week: meme
Yesterday was like a hash hole for Money Puff; it combined two great things and made something even better.
Here’s Matt Levine on meme-y cannabis company Tilray:
Inspired by all the other weird preferred stock deals, Tilray is doing one. It announced last week:
Tilray Brands, Inc. (“Tilray Brands” or the “Company”) (NASDAQ | TSX: TLRY), a leading global cannabis-lifestyle and consumer packaged goods company, today announced that the Company has entered into an agreement for the issuance of 120,000 shares of Series A Preferred Stock (the “Series A Preferred Stock”).
The Series A Preferred Stock is entitled to 1,000 votes per share, but may only vote on the Company’s pending proposal to eliminate Tilray Brand’s Class 1 Common Stock (“Proposal 3”). Proposal 3, if approved, would eliminate the unissued Class 1 Common Stock by reclassifying it into shares of the Company’s authorized and unissued Class 2 Common Stock.
The Series A Preferred Stock cannot vote independently, but instead must vote in the same proportion (For or Against) as all shares of Class 2 Common Stock are voted. The Series A Preferred Stock will convert automatically to Class 2 Common Stock on a one-for-one basis upon the closing of the polls at the Company’s adjourned annual meeting of stockholders. Upon conversion, there will be no meaningful dilution impact to Class 2 shareholders from the Series A Preferred Stock, as dilution will be limited to only 0.0002%.
“We believe the issuance of the Series A Preferred Stock will help amplify and safeguard the rights of all stockholders through the approval of our proposed Charter Amendment. This would ultimately help execute our strategic plan by facilitating accretive acquisitions,” commented Irwin D. Simon, Tilray Brands’ Chairman and Chief Executive Officer. “An overwhelming majority of our stockholders that have voted at our annual meeting have voted in favor of the Charter Amendment (Proposal 3), but due to the nature of our stockholder base, the proposal to amend our Charter does not yet have enough votes to pass,” Mr. Simon continued. “The Series A Preferred Stock has been structured to protect stockholder interests and is an important part of our efforts to simplify the Company’s capital structure and modernize our corporate governance with our proposed Charter Amendment.”
The buyer of the preferred stock is called Double Diamond Holdings Ltd. Basically the idea is that Tilray will give one friendly holder an extra 120 million votes, probably enough to pass the charter amendment, and then when the vote is done that friendly holder’s super-voting shares will poof into a smallish number of regular shares. Meanwhile the friendly holder will vote exactly the same way as the actual common shareholders — it’s just that the friendly holder will vote all its shares, while the common shareholders won’t. If 45% of the common votes yes and 5% votes no, then 90% of the super-voting shares will vote yes, which will help. Tilray is issuing super-voting stock, briefly, in order to get rid of its super-voting stock.
I won’t try to parse this any more — the point is that Tilray is doing some gimmicky shareholder stuff. Why? Because Tilray has a lot of retail investors — another term for Robinhood day traders — that don’t vote. Why do they have so many retail investors? Because Tilray is a meme.
I mean, strictly speaking, they are and always have been a cannabis company; reports indicate that they sell at least some herb. But their stock is certainly a meme stock. Meaning it represents the idea of cannabis (weed), rather than representing the discounted value of future cash flows (or whatever corporate finance definition you have for a stock price).
Back when money was free and the outside world was boring, a lot of people started investing in the stock market. In addition, they talked a lot about their investing online. The lexicon of the internet is memes, so popular retail stocks became memes.
Memes are funny and relatable, though the humor and relatability depends on the audience. The retail investors we’re talking about tend to be young, reckless, and very online; they also do a lot of sports betting.
The memes shared by this group inform the portfolio they will construct. What do these traders like? They like weed. They like crypto. They like Elon Musk — who in turn likes weed and crypto but mostly just likes to troll online. A portfolio therefore might include Tilray, Coinbase, and Tesla.1 To the moon!
So what’s the problem? I mean, stocks only go up, right?
Unsurprisingly, the predator from Barstool is wrong there. Stocks do not only go up; in fact, they can go down quite a lot. If a stock is only going up, there is a term for that: a pump and dump scheme. It’s what Leonardo DiCaprio was doing in the Wolf of Wall Street:
Is Money Puff accusing Dave Portnoy of running a pump and dump scheme? No, we’re not going that far. He’s already facing plenty of other accusations. But a takeaway for anyone watching the cannabis space is that the fundamentals of the industry and valuations across the space are probably still disconnected; cannabis stocks are memes, and memes got pumped. Now, they’re presumably being dumped.
Money Puff: The Movie
Speaking of film, I have a pitch for Martin Scorsese. The movie is called, ‘Money Puff: Pot, Pumps, and a Pandemic.’
The log-line is: Cannabis and crypto companies rode easy money and a meme-craze – during a global pandemic – to new highs. Then it all went up in smoke.
I can’t believe I’m saying this, but I actually think Bradley Cooper could play Portnoy; not for any physical resemblance, but because he’s so good at playing a degenerate middle-aged man past his prime.
Maybe I should just write the book first.
I don’t know if this is a meme, per se, but I want this shirt from Cynical Stoner:
I called Section 280E the bugaboo of the federal tax code and wrote about why it gives cannabis operators the howling fantods here.