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HIGHLIGHTS
  1. Tilray enters into a co-branding and revenue-sharing deal with Authentic Brands Group. 
  2. Canadian firms are moving into the U.S. CBD market following the passage of the Farm Bill. 
  3. Announcement comes same day the lock-up period ends on majority of Tilray stock.

Float like a butterfly, sting like a bee, and don’t forget your CBD – the advertising campaign almost writes itself. Following a co-branding agreement between Tilray Inc. and Authentic Brands Group, announced Tuesday morning, U.S. consumers could see a range of celebrity-branded cannabidiol products entering the market in the coming years.

Nanaimo B.C.-based marijuana grower Tilray has agreed to pay New York-based Authentic Brands (ABG) – the owner of celebrity brands such as Muhammad Ali and Marilyn Monroe, and retail brands such as Nine West and Juicy Couture – between US$100-million and US$250-million in cash and shares in return for a co-branding and revenue-sharing agreement.

In the U.S., Tilray will supply hemp-derived CBD for a range of Tilray/ABG co-branded beauty and wellness products, and receive 49 per cent of the revenues from their sale. In Canada, Tilray will also supply intoxicating tetrahydrocannabinol (THC), alongside CBD, for co-branded products, although celebrity marketing will not be permitted. As part of the deal, ABG has agreed to pay Tilray a minimum of US$10-million a year for 10 years.

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“Brands are expensive to build, and it's also expensive to build a distribution chain,” Tilray chief executive Brendan Kennedy told Cannabis Professional.

“This increases our speed to market through existing supply chains, and it validates the sector in the eyes of mainstream consumers and investors… Consumers would be much more likely to try a Juicy Couture CBD beauty product than some new brand they don't know,” he said.

The deal follows the passage of federal hemp reform in the U.S. in December, which removed hemp-derived CBD from the Controlled Substances Act. Use of the non-intoxicating drug has exploded over the past few years despite legal ambiguity, appearing in everything from hand creams to drinks. The new legislation, passed as part of the U.S. Farm Bill, is widely expected to open up the mainstream consumer goods market to CBD-infused products.

"It gives [ABG] a whole subcategory that they can distribute," Mr. Kennedy said. "For us it was hugely important to be able to legally obtain CBD and produce CBD products inside the United States.”

The promise of the U.S. CBD market is already drawing in Tilray’s Canadian competitors. On Monday, Canopy Growth Corp., supported by leading Democratic politician Chuck Schumer, announced that it has secured a license in New York to process and produce hemp, and intends to invest between US$100-million and US$150-million building a facility in the state. In October, Canopy paid more than $400-million in cash and shares to acquire Colorado-based hemp research company ebbu, Inc.

While hemp reform has opened the playing field to companies previously kept out due to legal and reputational risks, it remains unclear what CBD products will actually be allowed. After the passage of the Farm Bill, Food and Drug Administration commissioner Scott Gottlieb released a statement reiterating that CBD-infused products would be subject to FDA regulation.

“It’s unlawful... to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived,” Mr. Gottlieb wrote. However, he added that there are “pathways” to get CBD products to market legally.

"We think that we will be able to sell some of these products as soon as we can get them manufactured, based on today's regulatory framework," Mr. Kennedy said.

The ABG partnership announcement comes the same day a lock-up period ends for the vast majority of Tilray’s stock. The company went public last summer with a float of only 9 million shares; the other 83 million shares were subject to a 180-day lock-up, which ends Tuesday.

To calm fears of massive selling pressure, U.S. private equity firm Privateer Holdings Inc., Tilray’s majority owner, put out a statement on Friday saying it did not plan to sell its 75 million shares “during the first half of 2019.”

“When we decide to distribute shares, we 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,” said Privateer’s managing partner Michael Blue in a statement.

Another 7.8 million shares, owned by funds that invested in Tilray’s Series A round last February, will begin trading Tuesday. But Mr. Kennedy said these shares should be able to trade without causing much downward pressure on price.

“If I look at 90-day public volume, it’s 2.7 million shares. I think last week was certainly above five million shares a day... So if you look at the daily trading volume, seemingly it’s big enough to absorb these [7.8 million] shares," he said.

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