TLRY Surges 300%, More to Come?
September 9, 2018
Marijuana stocks are fired up big time after an avalanche of money has poured into the sector sparked by two events and hopes for a third. First there was the massive $4 billion investment by Constellation Brands (STZ), the $40 billion wine, beer and liquor giant, in Canopy Growth (CGC), which increased its stake in the company from less than 10% to 38%. There are reports that other alcohol companies, like Diageo (DEO), are on the prowl for similar investments in marijuana stocks.
Second, we’re seeing a lot of money coming out of cryptocurrencies and moving into other libertarian causes, with marijuana being the main beneficiary.
And third, there are hopes that Congress will return policy and the regulation of marijuana to the states. Right now there are 29 states that allow the use of cannabis for medicinal purposes and eight that have legalized it recreationally. If Congress returns oversight to the states, the adoption of recreational use could spread similar to the way the legalization of sports gambling is spreading state by state.
There’s also a wildcard for the industry: Attorney General Jeff Sessions. I suspect the day he exits the Trump administration marijuana stocks will soar since there will likely be less opposition on a federal level. Eventually, the government will have to drop its legal opposition even if it’s only on paper to allow for interstate banking.
The Cannabis Craze
The huge move into marijuana names has been especially good for Tilray (TLRY), which is a global leader in medical cannabis research, cultivation, processing and distribution. The stock has been on tear recently – soaring more than 300% just since August 1 as Wall Street embraces the cannabis craze.
I do see the stock going higher over time, but I am cautious here given its meteoric rise in the last month. In addition, the most recent quarterly earnings report showed revenue of $9.5 million, which is low to support a $7.1 billion valuation. And I am also not quite ready to recommend investing in the marijuana space yet, but you can be sure it’s on my radar.
I wouldn’t dissuade traders from TLRY, but it’s hard to give it a firm price target right now.