The share prices of certain marijuana companies could soon be set to encounter some extra volatility.
Over the next few months, lock-up periods of Trulieve Cannabis Corp. (TRUL), Medmen Enterprises Inc. (MMEN), Curaleaf Holdings Inc. (CURA), Harvest Health & Recreation Inc. (HARV), Acreage Holdings Inc. (ACRG) and Tilray Inc. (TLRY) are due to expire.
Once that happens, insiders who bought stock in these companies before their initial public offerings will be free to sell the shares as they please.
Jason Spatafora, a prominent cannabis investor and co-founder of Marijuanastocks.com, warned investors and traders to take action before the contractual obligations come to an end. “There will be blood,” tweeted Spatafora “de-risk accordingly.”
Tilray Expiry Coming Up
A 180-day lock-up period on 77% of Tilray’s stock ends Jan. 15. Analysts are speculating that investors could sell the shares before this date, adding that company insiders will struggle to resist the massive returns on offer if they cash in at the first available opportunity.
At $79.70, Tilray’s stock no longer trades anywhere near its $300 intraday high. However, the shares were listed in July at $17, so insiders choosing to sell Jan. 15 will still be sitting on an attractive return.
In a research note, reported on by Barron’s, Piper Jaffrey’s Michael Lavery slapped a $90 price target on Tilray. The analyst is bullish on the stock’s long-term potential, but also warned that the company’s lockup expiry is a “near-term risk” that could attract some selling pressure.
Most of Tilray is owned by Privateer Holdings Inc., a Seattle-based private equity firm backed by Peter Thiel.
Fortunately, expiring lock-up periods are not necessarily all doom and gloom, even if most investors interpret them to be a huge negative for stocks.
One of the positive implications of insiders dumping shares is liquidity. Plenty of institutional investors are unable to buy into exciting IPOs because their funds are governed by strict rules that prevent them from owning stock with small floats. Once shareholders sell enough shares, this barrier disappears.