Tilray Sparks Debate In Cannabis Community

Tilray Inc. (TLRY) has been somewhat a source of pride in the cannabis community, listing on the NASDAQ (NDAQ) with a successful Initial Public Offering (IPO). It’s a well-run respectable company with strong sales and an enviable portfolio of brands.

Two things have happened this week with Tilray. The stock went on a ridiculously crazy ride that even seasoned stock traders shook their heads at. A stock does not run up a chart like that without some sort of downside response. The second thing that happened was the Drug Enforcement Agency approval for Tilray to bring in medical marijuana for a scientific study.

Stock Moves

Cowen & Co. initiated coverage on Tilray’s stock with an outperform rating on August 13 and a target price of $34. This week the stock hit $300 at one point. Cowen analyst Vivien Azer defended her $34 price target at the time, assuming readers would question how she arrived at that number. No doubt Azer is probably wondering if she has to downgrade purely based on valuation.

Tilray began the week at $117, which was already a fairly rich valuation. It closed at $154 on Tuesday and then all hell broke loose. It opened at $233 on Wednesday, shot up to $300 at one point, dropped to $151 and then the trading was halted during the day. It eventually reopened and the stock closed at $214.

The wild gyrations had short sellers screaming now was the time to sell. Cannabis stocks were being compared to bitcoins and predictions of a dot-com bust were all over the internet. This is the part that hurts all cannabis stocks. According to S3 Partners, short sellers have lost $626 million since the start of August betting against cannabis stocks.

The company wrote, “Short sellers have been very active in the cannabis sector this year, with short interest climbing to $1.5 billion spread over 33 stocks and ETFs. This is a $458 million increase in short interest, +44%, since the end of the second quarter. Most of this increase was centered on increased short activity in Canopy Growth (CGC) and Tilray, which were up $514 million in just over three months.”

The cannabis industry tends to trade in lockstep. When one stock does well, they all tend to move higher. Similarly, when one struggles, they trade down in sympathy. Tilray’s seesaw moves hurt the industry as all of the companies get lumped into one. Comparing an industry with real product and real revenue to a digital cryptocurrency that doesn’t exist except in a computer is just well, dumb. It is making the comparison purely based on a percentage of increase in value. It makes a good headline for the short seller but is based on one metric alone.

There is no argument that the valuations have gotten ahead of themselves. Market values at 150x revenue? That’s not sustainable. Most of the industry insiders agree with this unless of course, their company stocks have stayed low. Then they stare wistfully at those unrealized gains.

Market stability is something everyone would prefer. Wild rides aren’t good for cannabis stocks.

DEA Just Says Yes
Tilray Inc. announced on Tuesday that the U.S. Drug Enforcement Administration (DEA) granted approval to import a cannabinoid study drug into the U.S. from Canada for a clinical trial at the University of California San Diego Center for Medicinal Cannabis Research. The agreement had been in the works for two years and plans on examining the safety, tolerability, and efficacy for a condition known as Essential Tremor.

According to the statement, “Tilray is providing a cannabinoid formulation for the trial in capsule form, which will allow researchers to test an investigational drug product containing two active ingredients extracted from the cannabis plant, cannabidiol (CBD) and tetrahydrocannabinol (THC).  It is expected to begin in early 2019 with financial support from Tilray and the International Essential Tremor Foundation.”

At first glance, this seems like a huge positive for the cannabis industry. Cross-border cannabis would make life so much easier for the companies that have operations in both countries. However, one wonders how this makes all the medical marijuana companies in the U.S. feel?

Rep. Matt Gaetz tweeted, “Unbelievable… gives approval to import compounds from Canada, while AG Sessions is sitting on 2 dozen+ applications from domestic manufacturers. What happened to “buy American, hire American”? The Florida Republican authored a bill that would require the granting of more cannabis cultivation licenses.  The licenses would be for more cannabis to be grown for research. The bill was approved but not voted on.

Considering the amount of cannabis that is grown in California and that the state has legalized medical marijuana for the last twenty years, UC San Diego couldn’t find a company in its home state to provide product for this study?

The Justice Department is handing out lifetime bans to people in Canada that work in the cannabis industry at the border, but then the DEA (which is housed under the DOJ) approves a cross-border transfer of cannabis? The same DEA that also considers cannabis to have no medicinal benefit?


The standard line in the investment community is that the market hates uncertainty. Roller coaster moves and short seller attacks hurt all cannabis companies. Even the big moves higher.

Stability in rules and regulations is also a plus. The industry has accepted that it can’t cross state lines, much less country borders. Then the DEA throws a wrench into this machine. It’s a like a kid yelling, “new rule, new rule.” Only, who does the new rule benefit? Will the Canadians similarly offer a U.S. cannabis company a chance to export its product for testing? Would the DEA allow that?

One thing can be certain in the cannabis industry, just when it thinks the rules are set – they change.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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