Canadian pot and alcohol titan Tilray Brands (NASDAQ: TLRY) is having a rough trading session today. Specifically, the company’s stock was down by 12.2% on sky-high volume as of 2:53 p.m. ET Monday. What sparked this sell-off? Apart from the fact that nearly all marijuana stocks are in the red today following their explosive moves higher over the past two weeks, Tilray Brands shares appear to be taking a bigger hit than most because of a potential dilution event.
Last Friday, the company filed a preliminary proxy statement with the Securities and Exchange Commission. In the filing, Tilray Brands requests shareholders approve a measure that would raise the number of authorized shares of common stock from 990 million to 1.208 billion.
The company argued in the filing that this increase would allow it to have more flexibility to respond to market conditions and pursue potential business development opportunities as they emerge. However, shareholders are usually not happy about being diluted in a significant manner, so it’s not altogether surprising the company’s stock price declined after the news.
Is Tilray Brands stock a buy on this sizable pullback? I think so. While dilution is rarely a welcome event for shareholders, Tilray Brands has proven that it tends to use funds from stock sales in a responsible manner that ultimately creates value for stakeholders. The company has built a dominant position in the Canadian cannabis market, a top-shelf international footprint in cannabis, along with an impressive portfolio of alcoholic beverages.
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