There was some understatement in Tilray Inc.’s prospectus for its initial public offering earlier this month, after which the Nanaimo, British Columbia-based medical cannabis company’s stock market valuation topped $1 billion.
“The medical cannabis industry and market are relatively new in Canada, and this industry and market may not continue to exist or develop as anticipated or we may ultimately be unable to succeed in this industry and market,” stated Tilray in its prospectus.
Securities filings by Tilray, which is majority controlled by Seattle-based private equity firm Privateer Holdings, show that the listing generated $2.3 million in legal fees and expenses for the issuer’s lawyers at Cooley and leading Canadian firm Blake, Cassels & Graydon.
Almost any observer would agree that now is a time of rapid change in the legal marijuana market, especially since Canada recently joined only Uruguay by permitting nationwide medical marijuana markets to grow. On Oct. 17, Canada will become the first major industrialized country in the world to legalize the production and sale of cannabis for recreational use.
In the U.S., only nine states and Washington, D.C., currently permit recreational cannabis use. Perhaps not surprisingly, lawyers from Tilray’s two outside firms—including Cooley’s John Robertson and Alan Hambelton, two Seattle-based corporate partners who worked on the IPO, and Blake Cassels partner Kathleen Keilty in Vancouver—either declined or did not respond to requests for comment for this story.
But Patrick Moen, a former supervisory special agent with the U.S. Drug Enforcement Administration now serving as a managing director and general counsel for Privateer, agreed to discuss the listing by Tilray on the New York-based Nasdaq stock exchange.
“Obviously, we wanted a U.S. firm that had experience with an IPO on [the] Nasdaq,” Moen said about Privateer’s decision to tap Cooley as lead capital markets counsel to Tilray.
Privateer had a prior relationship with Cooley, having started working with the firm seven or eight years ago, said Moen, calling it a “no brainer” to choose Cooley, which he added received about 70 percent—or $1.61 million—of the legal fees incurred by Tilray for its IPO. (Earlier this year, Cooley advised Privateer on a $100 million Series C funding round and a $60 million Series A funding round.)
Tilray turned to Blake Cassels to handle securities being issued by the cannabis company in the U.S. and Canada, Moen said. Tilray had initially looked at listing on a Canadian exchange, he said, but that changed after institutional investors weighed in.
“Ultimately, we heard they wanted us to be on a U.S. exchange,” said Moen, calling the timing “fortuitous” for Tilray’s successful listing as investors bet big on legal weed.
Tilray’s IPO was announced less than one week after the Canadian government legalized a national cannabis market. But long before that legislation passed, Moen said that Tilray’s lawyers had already been working on a structure for its future float, the first by a cannabis company to go public on a major U.S. exchange.
“There were some unique challenges,” Moen said.
For starters, the U.S. and Canadian underwriters—advised by Canada’s Osler, Hoskin & Harcourt—negotiated a complex inter syndicate agreement. There were also issues related to the Canadian regulatory environment, said Moen, as well as U.S. Securities and Exchange Commission examiners asking a lot of questions, perhaps most importantly whether or not Tilray sells its products in the U.S. (it does not).
“The challenge that we faced with some investors is how this industry is going to change,“ Kennedy said. “I like to say Ziploc is the biggest brand in the cannabis industry and over the next few years you’re going to see that change, you’re going to see real brands and real companies.“
While investors buying Tilray’s now publicly traded stock will have fewer voting rights than Privateer, Kennedy, an executive chairman for the private equity firm, told MarketWatch that during the roadshow prior to Tilray’s IPO, institutional investors liked to hear that Privateer intended on retaining a stake in the company instead of immediately cashing out of the business.
In its prospectus, Tilray stated that it would pour money raised from its IPO into expanding its “cultivation and processing capacity” in Canada and repaying Privateer. Tilray also has plenty of legal and regulatory firepower on hand to help it steer clear of, well, the weeds.
In mid-June, a month before it went public, Tilray announced that the appropriately named Maryscott Greenwood, CEO of the Canadian American Business Council and a principal at Dentons in Toronto, would join its board of directors. Greenwood also co-leads Dentons’ global advocacy and government affairs team. Christy Zhou, a former Blake, Cassels & Graydon associate, was named vice president of legal for Tilray in April.