The Nasdaq stock exchange blazed a new trail in July when Canadian cannabis company Tilray (TLRY) became the first marijuana-related company to IPO in the U.S. When the stock became available to the public, it traded for $17. By mid-August, it had doubled, reaching into the mid-$30s. However, on Sept. 19, 2018, TLRY saw a wild day of trading, jumping 93% to a high of $300/sh, then dropping quickly to trade in the red, getting halted five times and pulling back to close in positive territory at $214 a share. Needless to say, Tilray, like many publicly traded cannabis companies, has been a volatile stock.
How Tilray Makes Money
Tilray is based in the Vancouver Island town of Nanaimo, Canada, where the company is responsible for "cultivating and delivering the benefits of medical cannabis safely and reliably," according to its website. For 2017, the company saw revenues of $20 million--not nothing, certainly, but nowhere near enough to normally suggested a valuation 1000 times that figure. So what has prompted the sudden dramatic uptick in Tilray stock and valuation estimates?
A major reason why Tilray has skyrocketed to prominence is related to the U.S. Drug Enforcement Administration (DEA). The company said that the DEA had given official approval for Tilray to import its marijuana products from Canada to the U.S. This was seen as the last regulatory barrier preventing Tilray from taking product to the clinical trial phase in an effort to determine the medication's impact on the neurological movement disorder essential tremor. There are numerous other studies taking place as well, but the essential tremor efforts are the only ones set to take place in the U.S.
It's worth noting that Tilray was flying high even before the DEA news that it would be welcome to bring some of its products to the U.S. According to the company's Form 10-Q for the period ending June 30, 2018, Tilray's total assets ballooned from just under $54 million as of the end of 2017 to more than $106 million just six months later. For the six-month period ending June 30 of 2018, Tilray generated more than $17.5 million in revenue, as compared with just over $10 million for the analogous period a year prior.
Medicinal Marijuana Could Take Tilray Global
Although Tilray began in Canada, it has an ambitious plan to expand globally. According to the company website, Tilray was the first company to legally export North American medical cannabis to Australia and New Zealand; the company claims to now act as "one of the leading providers" of these products for that region. The company enjoys a similar distinction with medical cannabis exports to Europe, thanks to a cultivation license from the Government of Portugal which provides access to the EU market. Further, Tilray sells products in Argentina and Chile through a partnership with South American medical cannabis firm Alef Biotechnology. With these achievements, Tilray's interest in the U.S. market was perhaps inevitable; its access point through essential tremor research, however, may have been less so.
Tilray clinical research director Catherine Jacobson explains that the essential tremor study, the first of Tilray's projects in the U.S., is part of a larger project aimed at determining "how to target therapies for specific symptoms." In the medical cannabis sphere, most often issues like dosing and efficacy have been left up to patients on an individual level. Tilray's efforts could help to provide structure to these cases. Indeed, if Tilray's work in this area is deemed effective, it could potentially open up the gates to further projects and related products.
Companies Invested in Tilray
On Dec. 18, 2018, the Canadian cannabis company signed a partnership with Swiss drugmaker Novartis AG to research, develop, and distribute medical marijuana around the world, in what will go down in the books as Tilray's first global deal. The two companies are teaming up to commercialize Tilray's non-smokable medical marijuana products, develop new products under a partnership brand, and spread awareness about cannabis to pharmacists and physicians. News of the deal sent Tilray's share price soaring by as much as 12 percent
Two days later on Dec. 20, Tilray announced that it was teaming up with the world’s largest brewer, Anheuser-Busch InBev (BUD), to develop cannabis-infused non-alcoholic drinks for the Canadian market. As part of the deal, each company is investing $50 million in research. Market analysts have estimated that the cannabis-infused beverage industry could see annual U.S. sales of $500 million in the next five years. Shares of Tilray climbed 15.32% in pre-market trading after news of the company's most recent global partnership.
The deals between Tilray, Novartis AG, and Anheuser-Busch come after of a much-anticipated move by Canada to legalize recreational marijuana edibles, beverages, and smoking products earlier this year. On Oct. 17, 2018, Canada became the second country in the world after Uruguay to legalize recreational marijuana.
Why Cannabis Stocks Are So Volatile
On the news that the DEA would permit Tilray to import cannabis products for testing in the U.S., the company's stock shot up by nearly 30% in a single day. In the process, Tilray overtook Canopy Growth (CGC) to become the most valuable publicly-traded marijuana company.
All that being said, though, investors just learning of Tilray for the first time may be best off waiting to buy into the company. As with many recent IPOs, the dramatic uptick in Tilray stock may not sustain itself over the long term, even in spite of the company's success. Beyond that, marijuana company stocks are known for their volatility in markets around the world. Many investors are actually shorting Tilray, predicting that it will decline in price. Furthermore, the majority of the company's shares are privately held by private equity firm Privateer Holdings. Private shareholders will be able to sell their shares to the public in January of 2019, which might flood the market and drive the price down.
Why Investors are Short-selling Tilray
With an almost parabolic rise in share price, skeptics have seen Tilray shares as a shorting opportunity. Famed short-seller Andrew Left of Citron Research called a Tilray short in early September. As the DEA approvals came in the and Tilray shares soared, it continued to remain the most shorted pot stock even though shorts suffered.