Why are pot stocks on such a wild ride?
Tilray Inc. took investors on one of the wildest rides of the cannabis craze over the past two days. The weed stock notched its steepest slide since its July trading debut, falling 17 per cent to close at US$176.3 on Thursday.
A day earlier, Tilray nearly doubled, wiped that out and then surged 40 per cent into the close. All said, the stock is up 14 per cent since Tuesday.
As Tilray set its own milestones, Wall Street was also delivering records as a wave of buying sent U.S. stocks solidly higher, driving the Dow Jones Industrial Average above the alltime high it closed at in January.
Tilray’s roller-coaster ride has captured the attention of Wall Street as it became a proxy for the latest investor craze. The stock was the most traded by value Wednesday after only Amazon.com, and mentions of cannabis in news articles nearly doubled the amount mentioning crypto. Investors grew more cautious Thursday.
“When you get big moves like this, you suddenly have a lot of people paying attention,” said Matt Maley, an equity strategist at Miller Tabak & Co.
The fluctuations drew comparisons to the Bitcoin craze and even the height of the dot-com bubble. And while Tesla Inc. has delivered some whipsaw sessions and Advanced Micro Devices Inc. has tripled this year, the latest moves had a different feel.
“It’s almost like everyone wanted to express their fear and greed through one entity,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. “It’s fun to watch. It’s the wild west right now for cannabis. It isn’t the kind of thing that institutions would touch.”
Perhaps it’s no coincidence that pot mania comes as the crypto craze is dying off. The broader U.S. stock market has churned higher on the strength of the American economy and surging corporate profits, with gains checked by relentless concerns over trade policy. With riskier markets like emerging equities in the doldrums, any sign there may be a fresh can’tmiss growth story becomes a target for the inevitable kneejerk exuberance.
But for some people on Wall Street, it was bringing back unpleasant memories.
“We just went through this eight months ago with cryptocurrencies,” said investor Ken Mahoney, CEO of New York based Mahoney Asset Management. He said the investors buying cannabis stocks at their current prices were already betting on enormous successes, but even if legal marijuana takes off, some of the companies will fail.
However, it is easy to see why investors are so optimistic. This week, Coca-Cola acknowledged it could one day offer pot-infused drinks. That came after reports Coke was in talks with Aurora Cannabis about drinks containing cannabidiol, or CBD, a marijuana component that isn’t psychoactive. Aurora stock, which is listed in Canada, surged.
Tilray’s meteoric surge may be linked to a global focus on medicinal marijuana, backing from billionaire investor Peter Thiel and a tiny float of traded shares on the Nasdaq.
“I think they’re perceived as having a very strong management team and it’s one of only three Canadian (pot) stocks that has a U.S. listing,” said Canaccord Genuity analyst Matt Bottomley. “I think it’s the sentiment and excitement and a bit of scarcity of stocks in the U.S.”
Meanwhile, the S&P 500, the benchmark for many index funds, hit a new high Thursday, eclipsing the peak it reached last month.
Technology stocks, banks and health-care companies accounted for much of the broad rally. Energy companies declined along with crude oil prices.
A weaker dollar, which helps U.S. exporters, and a mix of mostly encouraging economic reports helped put investors in a buying mood.
“Some of the economic data that came out today continued to show strength,” said Lindsey Bell, an investment strategist with CFRA. “Given the strength in the economy, backed by the stimulus from tax reform as well as just fiscal stimulus in general, that should be able to offset some of the impact that we’re going to get from tariffs as we go into the end of the year.”