SEPTEMBER 20th, 2019
Canadian cannabis producer Tilray Inc. has had a record-breaking week on the stock market, with shares surging 94 per cent on Wednesday.
The daily percentage gains of pot stocks have even surpassed giant players in the market like Microsoft, Facebook and Exxon Mobil.
Canadian producer Tilray to export medical cannabis to U.S. for clinical trial
Tilray, which completed its initial public offering on the Nasdaq in July with shares priced at US$17, earlier this week said it got approval to export medical cannabis to the U.S. for a clinical trial.
Since the news, the Nanaimo, B.C.-based weed producer’s stocks have skyrocketed. It closed at US$214.06 on Wednesday, after trading as high as US$300.
Tilray’s market valuation reached more than US$19 billion Wednesday (the total dollar amount of a company’s outstanding shares). To put this in perspective, this put Tilray’s U.S. market value ahead of brewer Molson Coors, casino operator Wynn Resorts and American Airlines.
Tilray’s wild ride on the stock market is reminiscent of the bitcoin crazy last year and even the height of the dot-com bubble at the turn of the century.
Why are cannabis shares, like Tilray, on fire?
Tilray’s announcement came ahead of other great news in the cannabis industry. In August, Constellation Brands, which makes beers like Corona and Negro Modelo, invested $4 billion in Ontario pot producer Canopy Growth.
On Monday, BNN Bloomberg reported the company was in talks with B.C.-based marijuana producer, Aurora Cannabis, to make CBD-infused wellness drinks. However, Aurora has since said it has not signed a deal but is in conversation with beverage makers.
This caused Tilray, Canopy Growth and Aurora’s stocks to rise.
Scarcity could be another factor for Tilray’s growth, according to Greg Taylor, a portfolio manager with Toronto-based Purpose Investments.
“Once Canopy did a deal with Constellation Brands, it validated the cannabis space. A lot of global investors all of a sudden woke up,” he said.
“Tilray was the first company to do direct investment on Nasdaq — so for U.S. investors, way easier to buy stock.”
But the new cannabis industry has a lot of “space in the market” that investors are still not playing in. A lot of banks are not allowed to invest in weed stocks, so mutual funds can’t invest.
Instead, hedge fund and retail investors are eyeing cannabis stocks. But Taylor warns, this can create a lot of volatility in the market.
Should you invest in pot?
Taylor said the cannabis industry could get messy after legalization.
This is because some provinces are still not ready. Ontario has already delayed the launch of its cannabis retail stores and B.C. is also pushing back on the deadline, Taylor said.
“So cannabis companies may miss quarters,” he said.
However, Taylor said after legalization it may be a good time for investors to start researching. Right now cannabis stocks are flourishing because of “hype” but there isn’t any cash flowing in, so it’s tricky to know how well the company will do.
“But in six months to a year from now, they will be a real company with CFOs and operating costs. This will be the time to find out who is winning. This is a commodity at the end of the day and they need to create a brand if they want to win.”