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Shares in Tilray Inc., the most valuable marijuana company in the world, swung dramatically Wednesday as fervour in the cannabis sector reached new heights, raising fresh questions about skyrocketing valuations in the nascent industry.
At one point in the session, investors looked at the cannabis producer from Nanaimo, B.C., with two licensed Canadian facilities and US$28-million in sales, and saw a company that was worth more than Rogers Communications Inc.
Tilray’s wild day of trading, perhaps the craziest session ever for a Canadian company of any stripe, saw the shares nearly double to US$300 – adding $18-billion in market capitalization in a matter of hours – before then losing half their value after multiple trading halts.
They closed Wednesday at US$214.06, giving the company a market capitalization of $25.9-billion. Canopy Growth Corp., which until Monday was more valuable than Tilray, closed down nearly 6 per cent at $63.46, giving it a market capitalization of $14.5-billion.
Tilray went public in mid-July at US$17 a share.
At its peak market cap Wednesday of $36-billion, Tilray was more valuable than all but 17 Canadian companies, surpassing Rogers, Sun Life Financial Inc., Telus Corp., Loblaw Cos. Ltd., Magna International Inc., National Bank of Canada and Restaurant Brands International Inc., the parent of Tim Hortons.
“We can find no way to justify the price at these levels,” portfolio manager Gregory Taylor of Purpose Investments told clients in a note Wednesday morning as the shares crossed US$200 in premarket trading. Tilray “is starting to look like one of the greatest mania stocks I have ever witnessed, and I was hired to manage dot-com companies in the 90s. The price action of this stock is dangerous for many investors and the sector.”
Purpose manages the Marijuana Opportunities Fund (MJJ), which participated in the Tilray IPO at US$17, trimmed its position in the first week of trading at prices over US$30 and fully exited a few weeks ago at US$85, Mr. Taylor told clients. “By all accounts a good trade.”
“Every institutional investor we have talked to in this sector has long ago exited their position in Tilray,” he added. “The current buyers all seem retail, mainly from the U.S.”
Nearly every cannabis stock has zoomed since Aug. 14, the day Constellation Brands Inc. said it would pump US$4-billion into Canopy Growth Corp. That announcement validated the industry in the eyes of many investors and kicked off a craze to find the next cannabis/beverage company partnership.
Since that day, 11 stocks among a basket of 62 cannabis companies are up more than 100 per cent, with Canopy ranking 12th at a mere 97-per-cent gain since mid-August.
No stock has benefited more than Tilray – up 782 per cent since Aug. 14 – which has its primary stock listing not on the TSX, but on the Nasdaq.
Wednesday’s action seemed driven in part by CEO Brendan Kennedy’s Tuesday-night appearance on Jim Cramer’s Mad Money investing show on U.S. cable channel CNBC. Mr. Kennedy said cannabis’s pain-relief properties are a substitute for prescription medicine. He referred to cannabis stocks as a “hedge” for pharmaceutical investors and said he said Tilray intends to become one of the major companies in the cannabis space.
“I think all the alcohol companies need to enter this industry. It's a great hedge for them,” Mr. Kennedy told Mr. Cramer. "Whether you're an alcohol company or an investor in an alcohol company, this is a global opportunity.”
“Our intent is to build a company that dominates part of this [US]$150-billion industry. … We don’t want to partner with ABI [Anheuser-Busch InBev SA], we want to build ABI.”
For the week so far, the combined options-trading volume for Tilray and Cronos Group Inc. options was roughly 680,000 contracts, or about 2.7 per cent of overall U.S. single stock options activity, data from options analytics firm Trade Alert showed. “It’s pretty remarkable to see calls that were $50 out-of-the-money one day be $20 in-the-money the next day,” said Henry Schwartz, the firm’s president. “This is nearly the most insane thing I have ever seen in my entire life.”
On Tuesday, Tilray gained 29 per cent after the U.S. Drug Enforcement Administration granted the company approval to import medical cannabis for a clinical trial.
This Friday, Tilray will join the North American Marijuana Index that underlies Horizons Marijuana Life Sciences Index ETF (HMMJ), the biggest cannabis-related exchange-traded fund. Mark Noble, senior vice-president for ETF strategy at Horizons, says the firm does not comment on changes to the fund’s holdings before they are made.
With files from reporters Clare O’Hara and Mark Rendell, and Reuters.