Tilray buys convertible debt of pot producer MedMen, eyes U.S. market

Aug 17 (Reuters) - Canadian pot producer Tilray Inc on Tuesday said it will buy convertible debt of struggling U.S. rival MedMen Enterprises Inc’s for about $166 million in a deal with partners, giving it a pathway to enter the United States.

Due to U.S. federal laws classifying marijuana as an illegal drug, companies not based in the country can not directly own a U.S. weed business. However, the Biden administration has promised reform, making Canadian producers hopeful they could operate in the country soon.

By buying convertible debt and warrants - which can be changed into shares later - Tilray gets the option to take a “significant equity position in MedMen... following U.S. cannabis legalization”, it said in a statement.

Tilray shares rose 7% to $14.04 in aftermarket trading on the Nasdaq.

MedMen, once the largest U.S. cannabis company, put itself up for sale this year after years of growing losses and a string of scandals that led to lawsuits from former executives and investors.

Despite its “challenges and tribulations”, MedMen remains an “iconic brand, known by everybody, the ‘Apple’ of cannabis,” Tilray Chief Executive Irwin Simon said in an interview.

Simon, who earlier this year reverse merged his former company Aphria with Tilray, is still looking at more deals to get the new company to $4 billion in revenue by 2024.

“I want to grow by building additional share in Canada. There’s a lot we will do in Europe. We’re looking to do deals in the consumer business,” Simon said, adding that Tilray could also do more U.S. deals similar to MedMen.

Tilray said it purchased about 75% of MedMen’s outstanding convertible notes and 65% of its warrants in partnership with other strategic investors. Its share will equate to about 21% of MedMen’s outstanding Class B shares, it said.

MedMen has 25 retail stores in key states including California, Los Angeles and Las Vegas, and it should be able to get to 30 stores by the end of the year, Simon said. (Reporting by Shariq Khan in Bengaluru; editing by Richard Pullin)