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Shlomo Booklin trims cannabis plants at Tilray's medical marijuana grow-op in Nanaimo on Aug. 14, 2014.John Lehmann/John Lehmann/Globe and Mail

Tilray Inc. – the Canadian cannabis giant that recently announced a majority investment in American marijuana retailer MedMen Enterprises Inc. – is struggling to secure shareholder approval to raise more equity that it intends to use to fund the MedMen deal.

The Nanaimo, B.C.-based company had scheduled a special shareholder meeting on Thursday to vote on a proposal to issue new shares of Tilray, but abruptly postponed the meeting to Sept. 10 to give it additional time to solicit favourable votes. This is the second time that Tilray has postponed a shareholder meeting to finalize the vote, which was initially scheduled for July 30.

In a recent interview with The Globe and Mail, Tilray chairman and chief executive officer Irwin Simon said his company has a large retail shareholder base with a high turnover, and getting shareholders to participate in the vote has been a challenge.

A statement from the company released Thursday suggested that of the votes cast, the majority of shareholders do indeed support the move to raise more equity, and the postponement of the special meeting will give shareholders additional time to reflect on the benefits of Tilray’s deal with MedMen.

Tilray, and other unnamed investors, had struck a US$165-million deal with MedMen on Tuesday to buy out its debt from debt holder Gotham Green Partners, in exchange for a 21-per-cent equity stake in the California-based pot retailer if and when cannabis is federally legalized in the U.S.

The transaction is closed and does not depend on the proxy vote. The company intends to pay for its portion of MedMen by issuing nine million new shares at US$13 per share; if it fails to issue these new shares by Dec. 1, the company will pay Gotham Green Partners in cash. Tilray currently has US$488-million in cash.

Tilray was struggling to engage with retail shareholders even prior to the announcement of the deal. U.S. regulatory filings show that Mr. Simon sent multiple e-mails and voice mails to stockholders in August reminding them that voting for the issuance of new shares wouldn’t necessarily affect the value of their own holdings. “Proposal 1 will not by itself dilute our shareholders or increase the number of outstanding shares. What it will do is enable us to move quickly to take advantage of opportunities,” an Aug. 4 notice to shareholders stated.

Tilray’s attempt to get the vote passed is also coming up against pushback on social media; sentiment on platforms such as Twitter and Reddit can be instrumental in swaying the average retail investor. A Twitter account run by Robert Doxtator, a frequent cannabis commentator who operates under the pseudonym BettingBruiser, has repeatedly urged investors not to vote in favour of the proposal, arguing that share dilution would not be in the interest of Tilray investors.

In a note to clients, cannabis analyst Andrew Carter of Stifel Financial Inc. said that he believes the company will eventually be able to collect the necessary votes, but warned that it would be a “time-consuming” and “resource-intensive process” given the company’s large retail investor base.

Tilray shares were down by just over 4 per cent by Thursday’s close to US$12.68, after a brief jump the previous day as news of the deal sunk in. MedMen’s stock has gained 9 per cent since the transaction was announced.

The deal gives Tilray a foot in the door of the American cannabis industry, as the U.S. moves closer to fully legalizing cannabis for recreational use. A bill introduced in July by Senate Majority Leader Chuck Schumer to remove cannabis from the Controlled Substances Act was widely hailed by the industry as the most concrete step to date toward federal legalization.

Cannabis companies that are listed on major U.S. stock exchanges, such as Tilray, are currently not allowed to be involved in the American marijuana sector. Hence, some of these companies have resorted to complex deals that would eventually position them to tap the U.S. market. But MedMen is burdened with debt, and is attempting to orchestrate a turnaround under new leadership after years of financial mismanagement that saw the company’s value erode by more than 90 per cent.

Tamy Chen, an analyst with Bank of Montreal, believes that American multistate cannabis operators are unlikely to entertain discussions with Canadian pot companies after federal legalization takes place because their own valuations are likely to surpass their Canadian counterparts.

“If MedMen is successful in its turnaround, then Tilray would have acquired its stake for a reasonable price,” she wrote in a note to clients. “But if MedMen is unsuccessful, Tilray can walk away, but it would lose this U.S. pathway.”

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