Tilray stock in for another wild ride as pot mania persists
Global focus, strong management, tiny float of shares contribute to frenzied trading
WINNIPEG— Two months ago, Tilray Inc. was a little-known Canadian marijuana producer working to build its international footprint from the sleepy British Columbia town of Nanaimo.
Today, Tilray has become the king of pot. The stock has soared more than 10-fold since its initial public offering in July, dethroning Canopy Growth Corp. as the world’s largest marijuana company. It sports a market value of about $15 billion (U.S.), even after a pullback Thursday. A global focus on medicinal marijuana, backing from billionaire investor Peter Thiel and a tiny float of traded shares on the Nasdaq have all contributed to making Tilray an overnight sensation and the darling of cannabis on Wall Street for now.
“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.”
Tilray’s meteoric surge — the stock more than doubled this month alone — comes amid an investor frenzy surrounding Canada’s nascent marijuana market as the nation is poised to legalize recreational pot next month. The rally showed signs of fading Thursday, with the stock down 18 per cent to $176.35 in New York.
Investors are watching for the next big tie-up in the sector. This week, beverage giant Coca-Cola Co. said it’s interested in drinks infused with CBD, the non-psychoactive ingredient in marijuana that treats pain but doesn’t get you high. Constellation Brands Inc. is now the biggest shareholder of Canopy Growth after a $3.8-billion investment, and Diageo PLC is holding discussions with at least three Canadian cannabis producers.
Though there are more than 100 licensed producers in Canada, there’s a scarcity of quality cannabis companies that could be involved in a strategic venture with major firms, Bottomley said. Tilray is controlled by Seattle-based Privateer Holdings, which was founded by Brendan Kennedy, Michael Blue and Christian Groh in 2010 to invest in the cannabis sector, with some early backing from Thiel. The company produces medical cannabis in Canada and Europe and has supplied products to tens of thousands of patients in 10 countries spanning five continents through its subsidiaries in Australia, Canada and Germany and through agreements with pharmaceutical distributors, according to company documents. With medical cannabis now authorized at the national or federal level in nearly 30 countries, the legal market is in its early stages.
The stock may also be benefiting from a scarcity of shares. Privateer controls 76 per cent of the company, leaving just 10 million shares for trading in the public float. The limited float makes it more expensive to short Tilray’s stock.
The U.S. listing also helps, making it easier for U.S. day traders and hedge funds to join the ride. Canopy also has a New York listing, as does Cronos Group Inc. Most of the pot stocks trade in Canada for easier listings and to avoid running afoul of laws in the U.S.