Privateer Holdings Hits the Jackpot with $12B Tilray Stake | Hacker News Reader

Privateer Holdings Hits the Jackpot with $12B Tilray Stake

bloomberg.com

79 pointskgwgk71 comments

I know this is somewhat tangential to the story, but with now it looking like there will be a bunch of newly-minted billionaires in the burgeoning cannabis sector, I can't help but think of all of the (largely poor and minority) people whose lives were ruined by marijuana charges.

It's just kind of fascinating to me how we reserve the terms "drug dealer" mainly for (again, largely poor and minority) illegal drug sellers, but that very word "drug dealer" conjurs up more than illegality, but a real moral judgement that these are "bad people". But if you're rich and pulling on the levels of power to do it "correctly", you are a forward-thinking entrepreneur.

Not really sure what my point is in posting this, but just I guess as a reminder that how we even talk about morality is subtlely guided by the structures of society that are not "right or wrong" in and of themselves, but just how powerful people set things up to benefit them.

Similarly, rich-person's opioids are distributed legally (often) and are a drug treatment and addiction problem. Poor-person's opioids are criminal distribution and a law enforcement problem, treated in prison. Until sentencing reform, rich-person's coke (powdered cocaine) received much shorter sentencing than poor-person's cocaine (crack).

The difference, IMHO, is between the familiar and the 'other', between us and them, between feeling safe and feeling alarm. If someone of my milieu does it, it's one deviation from a norm I understand; they aren't threatening to me; they have my empathy or even my secret envy for doing something exciting. If someone of an unfamiliar milieu does it, it could mean anything; will they rob me? Kill my family in a drug-fueled rage? Undermine the foundations of society? It creates fear and alarm.

At an individual level this may be true, but it is becoming necessary to ask if this is a standalone phenomena or symptomatic of a system with one class extracting resources from another. Is the problem just a pattern of fallacy in the perception of privileged people, or is this pattern borne of the group interest to extract and control the underprivileged en masse, not explicitly or consciously thought about by almost anyone but economically incentivized?

To give another ex. it used to be common for people to be really uncomfortable with the idea of women having full-time jobs. Did this interpersonal discomfort create the system of gender roles where men extract domestic labor from women in marriage, or was the discomfort a function of this system?

That's one of the most interesting questions I've read on HN; thanks; I've really had to think about it.

To refine the question, I think it is, 'to what degree' does each factor - perception or system - cause the other?

First, I'd love to read someone who has studied the issue and has expertise in the domain, if anyone has any suggestions.

Obviously, I don't know the answer. I'd wildly guess that the economic system creates inequality which creates social division which creates the perceptual fallacy which reinforces it all. I'd also guess that for some the economic system creates a conscious desire to control the underprivileged; Thiel might be a leading example: "I no longer believe that freedom and democracy are compatible."[0]

Also, any system gains the self-reinforcing phenomena of normalizing itself (perhaps defined by the perceptual fallacy that the system is inevitable or the best of all possible worlds) and of vested interests who act, consciously and unconsciously, to protect the system that benefits them.

[0] https://www.cato-unbound.org/2009/04/13/peter-thiel/educatio...

In America this attitude (of seeing successful drug lords as talented entrepreneurs) has a long history, going back to early English colonization efforts. The English "settlers" in what is now Virginia were aspirational freebooters, hoping to follow in the footsteps of Cortez. When that failed hard, they eventually became what we would now call 'drug lords', with tobacco as their product of choice.

Going off on your point about "morality is subtlely guided by the structures of society...", the division that's created where people are put into morality buckets of "good people" and "bad people" have a lot to do with past government propaganda. What I mean by that is drug commerce in the early days happened through p2p cash exchanges, there was little govt oversight and thus govt couldn't extract taxes from these transactions.

So if govt can't extract taxes directly, they do it indirectly by criminalizing the act, then funnel even minor drug offenders through the prison system where they can finally get their piece of the pie.

Now that state govt's have figured out how to benefit from marijuana sales, they've become more receptive of "drug dealing" as long as you play by their rules and they get a share of every transaction that occurs.

There's also the issue of religion playing a big role in demonizing drugs. I do not want to make a statement in saying religious groups are "right" or "wrong" on the topic of drugs, but I will say they have a large voice in what the U.S. deems as moral.

Just adding a few thoughts/discussion points to your insightful commentary on current society.

What is also amazing about this is that it made me hesitate strongly about legalization of all drugs. Big ass companies selling drugs almost immediately as the market opens up is not how I pictured "decriminalization". Should coca-cola just sell straight up heroin? Should one of these companies produce internal documentation about the damages of marihuana and hide it, just like tobacco did?

I guess getting older gets you more conservative..

How did you picture it?

More like "organic farming", or "small batch alcohol" for a long time. I mean i pictured the actual criminal producers turning legit.

Current market cap: over $20 billion. Current quarterly revenues: under $10 million. Float: a measly 17+ million shares. Borrow rates: over 500% right now.

  Lots of momentum × tiny float = crazy market cap + crazy borrow rates.

Doesn't seem... sustainable.

It's not.

Sure, the stock crossed $200 today, but it also touched $300 midday before it started to free fall and got halted three times in the last few hours of trading. If you bought in at the peak today, you lost 33% of your investment in about 2 hours.

Getting in to TLRY right now isn't investing, it's gambling. Nothing fundamentally has changed about the business recently (AFAIK), but the stock is up 80% just this week and 500% in the last month. Seems to me, the run up the last few days seems pretty much driven by FOMO.

If only something similar in the beginning of the century happened before to teach us a lesson..

how to convert this to real money:

STEP 1) Be large shareholder on the board, advisory or executive team, but not necessarily a founder.

STEP 2) Call broker and tell them to turn off the borrow. This is the right way to squeeze the shorts, funding secured.

STEP 3) Do a private placement at the new high price. This results in dilution or is sold from the company treasury in exchange for US dollars. Its a secondary offering at the "market price".

"We’re going to figure out who did this and we’re going to take them down … provided someone pays us a fair market rate to do so.”

“Easy, chief,” I said. “Any rate the market offers is, by definition, fair.”

He laughed. “That’s why you’re the best I got, Lisowski."

https://finance.yahoo.com/quote/TLRY/options?p=TLRY

The stock moved up so much today that you can't see any calls that are out of the money or puts that are in the money on the main page of options on yahoo finance... (as of 3:16 PM ET)

In English?

It outperformed everyone's expectations.

and then crashed beyond everyone's expectations

Puts and calls are the two types of options contracts. They are created and trade in a range around the current price. Typically, this range is wide enough that it covers all moves of the underlying stock price. In this case, the price move exceeded what the professionals thought was even possible as a long shot bet.

And it opened at 233 and has traded between 150 and 300 today.

They added new strikes before open today, but I'm guessing yahoo finance wasn't designed to handle that.

> Citron Research said it remains short on Tilray, calling the stock’s surge “beyond comprehension” in a Tweet Wednesday.

and

> Tilray jumped as much 55 percent to in New York Wednesday to $240, giving it a value of more than $20 billion, higher than American Airlines Group Inc

Q2 revenue up just a touch from Q1, but losses have doubled. Of course this could be growth spending.

Up 60% today, which is absurd.

> > Tilray jumped as much 55 percent to in New York Wednesday to $240

It was at $295 prior to Liquidity halt today.

I don't see any possible way for the fund to actually make use of the "value" here. It's just a pumped stock that's had trading halted 3 times in the past hour or so. They wouldn't be able to sell without crashing the price and I highly highly doubt price is going to remain so high over time.

The borrow rates are the highest I've ever seen - 500% annualized. They'll likely be lending a significant portion of their stake, which will net them a good return even if they never are able to liquidate the stock themselves.

There was a Canadian VC that was banned for life at the US boarder for investing in a US cannabis company. Wonder if these guys will have problems.

Here's hoping saner among the electorate heads prevail and "life" winds up meaning 2 years (or hell... 47 more days)

If you are an American citizen you can not be bared from re-entry, no matter how much they might want to do so.

Well, your US passport can be confiscated and declared invalid... then you can be denied entry. Happened this year to people born in the Mexican border.

Context for curious: https://www.snopes.com/news/2018/08/30/revoking-passports-us...

"Between the 1960s and 1990s, dozens of midwives were convicted on fraud charges for claiming that babies who were born in Mexico were actually born in Texas. Although the actual number of babies for whom fraudulent U.S. birth certificates were issued was small in comparison to those who were legitimately born on American soil, Brodyaga said the cases have been used by the U.S. government to cast suspicion on anyone whose birth was attended to by a midwife "

Yeah this is suspect though and without due process so I bet after a few ACLU lawsuits and a couple Federal judges intervening then this will stop.

It'll probably be ordered to stop.

Whether it will actually stop is...well, this administration hasn't been known for full and immediate compliance with other federal court orders relating to immigration and citizenship...

> If you are an American citizen you can not be bared from re-entry, no matter how much they might want to do so.

OTOH, the government can just decide you aren't a citizen and decide the documents you rely on to prove it are invalid or fraudulently obtained, and they can do so at any time.

Historically, they generally haven't, but they absolutely can (and they've started presuming falsity for people born near the Mexican border in a wide time window and making them produce documentation that most people wouldn't be able to in order to prove citizenship, and ruling against them even when they manage to comply.)

Indeed, the right of an American to enter America is "absolute, unconditional, and irrevocable". They can arrest you immediately, or quarantine you for whatever disease, but they can never turn you away if you insist on coming in. In theory.

In practice, if the government doesn't want to believe you're a citizen then your right to enter isn't quite so strong.

Personally, this is starting to look like a pump scheme.

Which is weird...

Because Tilray supposedly has a decent business (just Google "seekingalpha Tilray"). But the price action to date has been (as others have noted) nothing short of insane. The CEO has been on a press tour the past few weeks which culminated in an interview on CNBC, and he's yet to even reference the stock price. Another commenter mentioned the craziest part, "You can't even buy $TLRY call options that are out of the money as of today" - meaning, absolutely 0 people foresaw the price action going this crazy.

Why let it get this out of hand? It's a legit business doing legit business? Why do they need the stock price at these insane levels? The resulting burst of this bubble is only going to hurt the retail investors, and cannabis stocks in general (at least short term). Obviously my first answer is the ol' Jordan Belfort pump and dump, but outside of just pure greed, it seems Tilray hardly needs this to happen.

I also learned via Bloomberg that the Tilray CEO, is a leading partner in the (private equity) firm that owns 75 million shares of unlisted Tilray stock. Which makes me wonder if he's working for Tilray, or for private equity (still).

Something is just very, very fishy about this to me.

> "You can't even buy $TLRY call options that are in the money as of today"

Exactly backwards: All of the call options on $TLRY are in the money.

Thanks for the catch, trying to make the edit.

Still incorrect actually. There have been out of the money call options on TLRY all day.[0]

OP got mixed up because someone posted about how Yahoo finance only had in the money calls, but that was Yahoo's fault alone.

[0] https://www.nasdaq.com/symbol/tlry/option-chain?callput=call...

I get what you mean, but it depends on when/where you looked for the options. Basically saying at some point in the day, there were no OOM call options - which still...makes the point.

> “Our long-term vision is if a patient walks into any pharmacy in any country in the world that has legalized cannabis that patient should be able to obtain a Tilray product. That’s our global goal,” Kennedy said in an interview this week from New York.

Hopefully this doesn't signal the beginning of cannabis consolation. It's possible that the market will follow the model of the beer market, where a few large companies have bought out numerous microbrewers.

Anecdotally microbrewers seem to be doing fine. The city I moved from (pop. ~200,000) had ~10 microbrewers. The city I currently live in (few hundred thousand people as well) also has several.

If small companies can't compete it'll be because they can't deal with the regulation or the business gets commodified and they can't compete on price since they don't have economies of scale, but the later doesn't seem likely to me.

It's a reasonable analogy, but I gather that the regulatory demands are currently much higher for small cannabis producers. A close relative of mine is a small-scale producer and the restrictions, price drop, and delays from the legalization process have been making it hard for them to stay in business. Hopefully it gets worked out soon because I'd love for the ecosystem to end up looking like microbreweries, but I fear that it'll end up being more like other agribusinesses.

As someone who really enjoys beer, isn't part of the reason for that because of the incredible variety of styles and flavors that can be achieved with beer? It's such a versatile medium with a large range of quality differences.

But as someone also who has never smoked pot or been that interested in it - is it anything like that at all? Or is the experience pretty generic (other than the obvious quality differences)?

My subjective opinion is that cannabis is far more variable in terms of both effects and smell/taste than any alcoholic beverage. Partly because the psychoactive effects come from 100s of discrete compounds rather than just one source (ethanol), but also because there are a ton of aromatics and terpenes in the plant which depend upon dozens of variables -- not just the strain but the ways that you grow, harvest, dry, and consume it. And on top of that, it's being intensively bred and modified at the moment. Intensive genetic modification hasn't happened yet, but I fully expect to see cannabis strains that glow in the dark or contain nicotine (or taste like craft beer) in the years to come.

Cannabis flower is similar to beer in the sense that you discuss, but there are also oils, hash, and edibles. Vaporizer oil is offered in a wide variety of artificial flavors, and strains vary considerably in natural flavor, from the putrid to the delicate. There isn't a "standard" varietal or strain, and the plants can be grown to encourage a wide variety of qualities. An indoor grow operation might prefer "sea of green" techniques, with plants trimmed and trained to grow many small colas, like a field of lollipops. The same plant placed outdoors might become a 3m tall tree. I think that if we extrapolate current conditions in the States which have legalized recreational sale, the cannabis market would closely resemble the beer market.

However, legalization has also generally lowered prices, and it may be that we have not seen the end of that trend. Some have suggested that cannabis should naturally be only a few dollars per pound. However, I don't think that prices are ever likely to reach that point, and the question for the public I think is whether that disparity should result in high profits or high tax revenues.

It’s a botanical product that has a range of tastes and flavors that span almost the entire range of culinary herbs, in a somewhat unexpected way. Quality of end product is very dependent upon quality of cultivation and genetics, and that’s why in Denver, prices range from $4 to $25 a gram. Same for concentrates - the flavor and effect of the water hash and live rosin is far more delicate (for $90 a gram) compared to the base waxes and shatter that costs dramatically less, about $15 a gram.

It’s like the difference between Highland Park, Dewars and $10 crap scotch but also the difference between Kahlua, Tanqueray and Limoncello - and also the quality and brand variances within a style. The dozens of varieties of herb and extract you see at the store do all separately exist for good reasons. The expensive extracts are clearly a more delicate product than the cheap ones, and among a certain brand there maybe be several very distinct (natural, botanical) flavors available.

I tend to keep a variety on hand - a lemony sativa extract like Super Lemon Haze or Jack Herer, a skunky/gassy hybrid like Sour Diesel, a bright Sativa like Columbian or Panamanian, and a heavy indica like Grape Skunk or whatever smells good (strain names can be standard or per-store) in addition to something with CBD and maybe CBN (medicinal cannabinoids). Selection for me is very flavor dependent, but also for the effects, which vary widely within a range and are harder to predict by aroma and appearance.

There will be cannabis companies operating at every level and style you see in the craft beer, alcohol and coffee markets. Like beer, for example, it will range from market crap sold at Walmart or CVS to mass market fake quality products (like the major brewer owned/fabricated craft beers) to quality big local brands to neighborhood growers to handmade boutique specialty products for gourmets and wealthy people. Of course, like everything else, the people with big money now will mainly be the ones making big money there because they have the money to invest and control everything else. But there’s vast opportunity for people in it now and everyone else on the way up.

The beer market seems incredibly diverse when you compare is to the other big legal drug, nicotine. Cannabis might end up like Tabac.

The news about Tilray today made me think about XRP or Ripple last year when it spiked to $4

Yup, which was the perfect time to dump all your crypto bags.

I am actually surprised the Feds allow the stock to be traded on a US exchange. I would think that there may be some regulations on the money raised (e.g. during an IPO) and transferred out of the country based on their industry.

The price will crash even if he sells a tiny amount of it.

How much can he get out from this? any way to hedge his exposure to this until lockup expires?

Could do similar things to what Mark Cuban did to hedge his exposure of Yahoo stock after the purchase of his company. Basically shorting against your holding [1].

[1] https://www.quora.com/How-did-Mark-Cuban-save-his-wealth-fro...

It's not shorting if you're holding, it's just and option.

People use “short” as a synonym for holding a put option all the time.

Being a long on in the money PUT is called synthetic short.

>Could do similar things to what Mark Cuban did to hedge his exposure of Yahoo stock after the purchase of his company. Basically shorting against your holding [1].

I interpreted that article to mean that he shorted the sector (Internet) that his holding (Yahoo) was part of, but without appreciably shorting his actual holding. (less than 5% of the fund he shorted.) Had the Internet sector (and therefore the fund) went up while Yahoo went down, he could have lost from both directions.

Why would he want to get out of it?

He could collar his position. https://www.investopedia.com/terms/c/collar.asp

He better sell it quick!

I guess the "Thiel-backed" bit in the title worked as clickbait. It's not like Thiel had foresight, the Privateer people did.

Or to extend it further, it's not like Privateer had amazing foresight either.

Someone please explain this: Revenues in 2017: ~$21M, loss: $7.5M

But, market cap: $27B

Why?

A stock goes up when someone buys it and down when someone sells it. Valuations based on financial numbers work only if decisions to buy or sell are also based on that framework. In this case people are buying based on the felling that this is "the next big thing" without looking at the numbers. So, since people keep buying, the stock keeps going up. They will get slaughtered, but it will take time.

> A stock goes up when someone buys it and down when someone sells it.

this isn't true: to buy a share someone else has to sell it (with some exceptions)

in reality the price depends on what the buyer and seller agree (electronically or otherwise) -- just like everything else you buy

in general if demand is higher than supply the price rises, just like other markets

Right. Just easier to say buying a stock drives it up than buying a stock at the offer price removes liquidity at the lowest current offer price.

There are a bunch of weed stocks with these same types of numbers. See weed.to and Aurora Cannibis. It's mostly speculation as to what the market might become. Like a startup forecasting numbers tends to be worth more than one that is actually in the market.

There are not many shares available (mostly locked up by insiders) and the whole sector is the new bitcoin for retail traders. Call it the Robinhood effect. It's going to be ugly when it pops.

"Market cap" = #traded shares X share price. It does not reflect any real value short term, only the greed/fear state, or where we're at on hype cycle etc.

Short squeeze dynamics can cause a stock price to diverge significantly from fundamentals. There are limits to what can be arbitraged, and that may be what is happening in this case. https://www.marketwatch.com/story/tilray-is-the-poster-boy-o...

So, is Thiel going to be in trouble for this or is that threat only for small investors?

http://fortune.com/2018/09/14/canada-cannabis-ban-us-border/

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