Wanna Know What Just Happened With Tilray Stock?

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TLRY Stock: A Short Squeeze of Epic Proportions

A lot of attention is currently focused on the marijuana stock sector. Ever since August 15, when news broke that Constellation Brands, Inc. (NYSE:STZ) was increasing its ownership stake in Canopy Growth Corp (NYSE:CGC), this sector has been on a tear to the upside.

Of all the stocks in the marijuana industry, Tilray Inc (NASDAQ:TLRY) has gained the most media attention lately. That’s because, since that fateful day of August 15, Tilray stock has been one of the the largest benefactors of the move toward higher stock prices in the sector.

To recap, TLRY stock ran from a low of $26.11 on August 15 to a high of $300.00 on September 19. This move translated into a 1,049% return over a five-week period, which is quite astonishing.

The move became so ludicrous that, at one point, Tilray was sporting a market cap of $22.9 billion. To put this into context, with revenues of $28.0 million, Tilray had a higher market cap than half of the companies in the S&P 500, surpassing companies like Best Buy Co Inc (NYSE:BBY) Hershey Co (NYSE:HSY), and Hilton Hotels Corporation (NYSE:HLT)—all of which generate billions of dollars of revenue.

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This astonishing and ludicrous move is why I have been fielding numerous inquiries in recent days, along the lines of: “What on Earth is going on with Tilray stock?”

As a result of these inquiries, I am going to do my best to explain the factors that came together in a perfect storm, making TLRY stock move as violently as it did.

For starters, I believe that this upward move was fueled by a combination of short sellers and momentum traders chasing a limited supply of Tilray shares that were available for sale.

Short sellers are investors who bet against a stock by selling it outright in hopes of buying it back a lower price in the near future. The size of the move, and the valuation that was allotted to Tilray shares as a result, may have been the catalyst that caused these investors to pile into their positions.

Momentum traders are investors who chase performance by buying stocks with the intention of selling them at a higher price in the near future. The highs based on the news, coupled with the persistence of the move toward higher prices, may have been the catalyst that caused this group of investors to pile into their positions.

Both of these groups of investors were playing in an arena where a limited float of shares were available for sale. On the surface, Tilray has almost 76.5 million shares outstanding. But here is the kicker: only 17 million shares are available as a public float because the remaining shares are locked up by insiders and institutions.

The size of the float matters because, as of August 31, the short interest had reached almost 19.7%, meaning that 3.5 million shares had been sold short. This was an increase of almost 97% from the previous reported date, two weeks prior.

This number doesn’t even account for the days and weeks that followed. To put things into context, on August 31, when this number was reported, TLRY stock closed the trading day at $77.01. This record date—and the price action that followed—is captured on the following chart.

Chart courtesy of StockCharts.com

In September, the Tilray share price continued to churn higher, which further captured the attention of momentum investors and put additional pressure on the short sellers.

This persistent move toward higher prices set off a short squeeze of epic proportions. From September 7 to September 19, the TLRY stock price more than quadrupled. On September 19 the price nearly doubled at one point.

September 19 was a mass-induced panic buying event. Momentum traders were chasing stocks as greed and fear of missing out (FOMO) overtook all rational investment decisions. Short sellers were likely forced out of increasingly difficult positions.

September 19 marked the climax of this mania, and lower prices have since prevailed. This mania, driven by an epic short squeeze, has likely put a significant top into Tilray stock for some time to come.

Analyst Take

I believe that the incredible and relentless move toward higher Tilray stock prices was driven by a number of events.

Those events came together in perfect unison to create a short squeeze that ultimately drove the TLRY stock price to unsustainable heights.