On Tuesday, September 18, Tilray Inc (NASDAQ:TLRY) surpassed Canopy Growth Corp (NYSE:CGC, TSE:WEED) to become the world’s most valuable pot company.
Tilray, which had its initial public offering (IPO) in July, saw its share price hit an intra-day high of $155.10, representing a two-month gain of 811%. That valued the company at $14.0 billion and made it the most valuable marijuana company in the world.
Early TLRY stock investors enjoyed massive gains on Wednesday too, with the company’s share price soaring more than 50% in early morning trading to $237.00 per share. This represents an eye-watering 1,294% increase over the company’s July IPO price of $17.00.
Moves like this make it virtually impossible to forecast what will happen to Tilray’s share price in the near, medium, or long term.
Tilray Inc Becomes Most Valuable Pot Company
Tilray had its best day ever on Wednesday. It’s now the world’s most valuable pot company, with a market cap of $19.4 billion (and counting).
Canopy Growth Corp had held that title, with a market cap of just over CA$14.0 billion (US$10.78 billion), since its inception.
Canopy, however, is still the biggest marijuana company in the world when it comes to production and sales with over 2.4 million square feet of production capacity and first-quarter 2019 revenue of $25.9 million.
However, the frenzied hysteria around Tilray has rocketed its market capitalization into the stratosphere.
Why has Tilray’s share price soared more than 80% in less than three days? There are a few reasons.
First, Tilray is one of just a few marijuana companies to be listed in the U.S., making it easier for investors to buy. The vast majority of cannabis stocks trade on the Toronto Stock Exchange.
Second, Tilray’s share price got a massive boost on Tuesday after it announced that the U.S. Drug Enforcement Administration (DEA) had granted it permission to import cannabis into the U.S. for medical research.
Third is supply and demand. Tilray Inc has about 76 million shares, but only 10 million of them are traded at any given time. That’s peanuts compared to Canopy, which has a float of 214 million shares. Lots of investors want a piece of Tilray, but few are selling.
About Tilray Inc
Nanaimo, B.C.-based Tilray Inc is engaged in the research, cultivation, production, and distribution of medical cannabis and cannabinoids (CBD).
Tilray was the first licensed producer of medical cannabis in the world to have its facility Good Manufacturing Practices certified in accordance with European Medicine Agency standards.
Tilray currently serves tens of thousands of patients, physicians, pharmacies, governments, hospitals, and researchers in eight countries through its affiliated entities in Australia and New Zealand, Canada, Germany, and Portugal.
Some of Tilray’s products include CBD oil, CBD capsules, and dried whole flower cannabis.
Tilray Inc Announces Agreement with U.S. DEA
On September 18, Tilray Inc announced an agreement with the U.S. DEA to import marijuana to the United States for medical research. Tilray will collaborate with the University of California San Diego Center for Medicinal Marijuana Research to study the safety, tolerability, and efficacy of marijuana for essential tremor (ET). (Source: “Tilray Receives Approval from U.S. Government to Import a Medical Cannabis Study Drug for a Clinical Trial at the University of California San Diego Center for Medicinal Cannabis Research,” Tilray Inc, September 18 2018.)
ET is a neurological movement disorder characterized by involuntary and rhythmic shaking. ET affects 0.4% of the general population, with 4.6% to 6.3% of those 65 years of age or older suffering from the condition.
The clinical trial with UC San Diego is the fifth worldwide using Tilray’s cannabis. The University of British Columbia is conducting a study on the effect cannabis has on post-traumatic stress disorder, the University of Sydney (Australia) is conducting a study on chemotherapy nausea reduction, and The Hospital for Sick Children in Toronto is using Tilray’s cannabis to study pediatric epilepsy.
Why use Tilray’s medical marijuana? Marijuana is still illegal under U.S. federal law, and the country has very strict rules governing marijuana. This means there are very few suppliers of medicinal marijuana. Not only that, but the limited number of suppliers means they may not have a specific formulation a particular study requires.
Enter Tilray. The company, licensed by the Government of Canada, has passed dozens of quality control inspections from pharmaceutical distributors, retailers, and foreign governments. Its medicinal marijuana is also pharmaceutical grade.
Should any of the clinical trials result in a licensed medicine, Tilray would own the intellectual property rights, which would be a boon for its bottom line.
“Clinical trials build a halo around the brand. They inspire confidence and trust with physicians and regulators around the world and they give us data and information to talk to pharmacists and physicians that they just can’t obtain from our competitors,” said Tilray CEO Brendan Kennedy. (Source: “Pot stocks are soaring again with Tilray surging 40% in single day,” CNBC, September 18, 2018.)
But Tilray is looking for more than just successful clinical trials.
“We would participate in these clinical trials even if we knew no licensed medicines were going to come out of them,” Kennedy added. “It gives us data, it gives us information, it gives us dosing data, and that information enables us to educate and inform physicians and pharmacists around the world.”
Tilray Announces Partnership with Nova Scotia Liquor Corporation
Tilray’s marijuana is used for more than just medical research. In late August, the company announced that its wholly owned Canadian subsidiary, Tilray Canada Ltd., was chosen by the Nova Scotia Liquor Corporation to receive an initial purchase order for recreational cannabis products, which will be sold to adults in that province.
Recreational marijuana will be legal in Canada starting October 17, 2018. (Source: “Tilray Selected by Nova Scotia Liquor Corporation to Supply a Variety of Adult-Use Cannabis Brands and Products,” Tilray Inc, August 27, 2018.)
Tilray Reports Second-Quarter Earnings
On August 28, Tilray reported its financial results for the second quarter, ended June 30.
The company reported second quarter increased 95.2% year-over-year to $9.7 million.
The sharp increase was driven by increased patient demand in Canada, sales to other licensed producers, and international sales. (Source: “Tilray, Inc. Reports Second Quarter 2018 Earnings,” Tilray Inc, August 28, 2018.)
Total kilogram equivalents sold increased 97% year-over-year to 1,514 kilograms (3,338 pounds). The average net selling price per gram increased from $6.20 to $6.38.
Tilray reported a second-quarter net loss of $12.8 million, or $0.17 per share. During the second quarter of 2017, Tilray reported a net loss of $2.4 million, or $0.01 per share.
“We are very pleased with our strong start to 2018,” said Kennedy. “Tilray is well-positioned to continue to pioneer the development of the global medical cannabis market and to become a leader in the adult-use cannabis market in Canada.”
“In the second quarter, we generated significant revenue growth as a result of our global strategy, our multinational distribution network and our commitment to research, innovation, quality and operational excellence,” he added.
Tilray Inc Price Forecast
Let’s be honest: it’s virtually impossible to forecast where Tilray’s share price will go. It’s a crapshoot. Less than two months ago, it was trading at $17.00; today, it’s trading at $230.00. The company announced solid second-quarter results and a number of agreements and partnerships, but it’s tough to say all of that justifies the current share price and a market cap of $19.4 billion.
Tilray’s second-quarter revenue beat Wall Street expectations but missed on earnings, with losses widening to $12.8 million. The average analyst estimate for revenue projections for the third quarter currently stands at $9.94 million with a loss of $0.14 per share. (Source: “Tilray, Inc. (TLRY),” Yahoo! Finance, last accessed September 19, 2018.)
For the fourth quarter, analysts expect Tilray to report revenue of $13.9 million and a loss of $0.01. For fiscal 2018, Tilray’s estimated revenue and earnings are projected to come in at $41.0 million and a loss of $0.45.
For fiscal 2019, analysts project that Tilray will report full-year revenue of $153.19 million and a loss of $0.01 per share.
Chart courtesy of StockCharts.com
TLRY stock hasn’t shown any real resistance since going public. It’s also so new that there isn’t a 50-day moving average. All you could say about Tilray is that it’s bullish, and, with a relative strength index (RSI) of 90.39, is solidly overbought.
At best, revenue potential from recreational marijuana sales in Canada, which only has a population of approximately 36 million, is already baked into Tilray’s price. But it appears as though some investors, too afraid to miss out on the next big thing, are going to send Tilray’s share price even higher.
Suffice it to say, it wouldn’t be a total surprise to see Tilray stock’s share price pull back on well-deserved profit taking.
On the other hand, it wouldn’t be a surprise to see euphoric investors send TLRY stock’s share price above $325.00 per share before the end of the year.
There is, after all, a lot of potential for marijuana stocks. That extends well beyond medicinal and recreational use.
Kennedy said that cannabis is a “hedge” for pharmaceutical companies and investors because it can replace opioids and other painkillers. (Source: “Investing in cannabis is ‘a great hedge’ for alcohol and drug companies, CEO of medical marijuana play Tilray says,” CNBC, September 18, 2018.)
Kennedy also said that, “Whether you’re an alcohol or an investor in an alcohol company, this is a global opportunity,” and that Canada is just the tip of the iceberg when it comes to the full legalization of marijuana, with perhaps a “third country within 12 months of October.”
This is just the motivation investors need to keep Tilray’s share price puffing along.