Tilray popped more than 20 percent Friday after its largest shareholder, a private equity fund backed by Peter Thiel, said it will not sell any of its remaining stake following the expiration of the marijuana grower’s IPO lock-up period next week.
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“Privateer Holdings strongly believes in Tilray’s long-term global growth strategy and pioneering role in shaping the future of the legal cannabis industry,” said Michael Blue, a managing partner at Privateer, which owns about 80 percent of Tilray. “Given this, we do not have plans to register, sell or distribute the shares Privateer holds in Tilray during the first half of 2019.”
This eased concerns of shareholders in the volatile stock and also caused short sellers betting that Privateer would at least trim its position to close their positions to prevent further losses, a phenomenon known on Wall Street as a short squeeze.
Tilray shares are up nearly 500 percent since their initial public offering on the NASDAQ in July. Such lock-up periods are designed to prevent company insiders—including employees, their friends and family, and venture capitalists—from selling their shares for a set period of time, according to the Securities and Exchange Commission.
Though there are more than 76 million Tilray shares outstanding, the public markets only have access to 23 percent of the total equity, about 17.8 million shares. Further, of those 17.8 million floating shares, more than 21 percent had been sold short as of Jan. 10, according to FactSet.
Blue added that should Privateer ever decide to distribute shares, it will do so “in an orderly and deliberate manner to maximize tax-efficiency considerations for Privateer investors, while also taking into consideration potential impacts on Tilray’s public float.”
The main objective of such IPO lock-ups is to dissuade early investors from flooding markets with their shares as retail investors start to buy equity. Such a move by large early investors could depress and create extraordinarily volatility for a newly-public company. Tilray’s lock-up period expires on Jan. 15.
Founded in 2013, Tilray was incorporated under CEO Brendan Kennedy’s cannabis-focused private equity venture Privateer Holdings. Billionaire investor Peter Thiel’s Founders Fund became the first institutional investor in the cannabis industry through Privateer’s $75 million Series B financing round in December 2014, according to the company’s website.
Privateer announced last year that it raised $200 million to invest in cannabis brands.