Tilray (NASDAQ:TLRY) is bitcoin. Well, not exactly. But any asset whose price is held together by hype, whose price depends not on what it does but what some greater fool will pay for it, is bitcoin. Tilray stock is such an asset.
Tilray stock is a pot stock. It sells marijuana. It sold $20.5 million in marijuana last year and another $17.5 million worth in the first half of this year.
From this, it drew a market cap of $11.45 billion, as of the opening of trade September 24. That’s what I call partying like it’s 1969.
Whether you’re talking about bitcoin, or penny stocks, or tulips, Pets.Com or pot stocks, it’s all the same game. You’re buying because someone else is buying, and they’re buying because someone else is buying.
That’s not investing. That’s betting on the gullibility of others.
Tilray Stock’s Hype Machine
Tilray is based in British Columbia, where the penny stock craze began, and TLRY was one of the first marijuana producers to go public on the Nasdaq in July. The Tilray stock IPO aimed at raising $1.3 to $1.5 billion and priced at $17 per share. The 9 million shares started trade at $23.05.
What made Tilray exciting, besides being first, was its talk that this wasn’t just your grandfather’s pot stock, that this would be serious medicine. The pot is grown in Portugal and Canada, and CEO Brendan Kennedy predicted that ultimately just 10% would be smoked, that the rest would go into other products. He envisioned people buying pot-based beverages at bars, getting high and having no hangover.
Much of Tilray’s stock, however, was owned by Privateer Holdings, a Seattle private equity outfit behind “the official cannabis brand of Bob Marley.” Marley died in 1981.
This is the kind of hype machine that draws plungers the way dead meat draws flies, and we were off to the races. The big news came in August in the form of a $3.8 billion investment by Constellation Brands (NYSE:STZ) in another marijuana stock, Canopy Growth. (NYSE:CGC). That seemed to legitimize the space for many investors.
By the time Tilray delivered a second quarterly report on September 3 — another loss but $9.7 million in revenue — the stock was already trading at $77 and we were off to the races. On September 19, the shares peaked $300 each, then the air suddenly went out of the balloon, and five days later we’re back to $123 per share.
Now, The Hangover
Don’t let anyone tell you there’s no hangover with marijuana… or marijuana stocks. The stuff has many effects, and as research is ongoing, we don’t know what happens with all marijuana users.
Fortunately, we know what happens with penny stocks, and tulips, and other speculative assets. People catch on and we get back to fundamentals. In Tilray’s case, the fundamental is the official opening of the recreational marijuana market in Canada next month. The official earnings whisper for the current quarter is for another loss on $10 million in sales. Full year revenues are estimated at $41 million.
In short, right now you’re asking me to buy $40 million in 2018 revenue for a market cap of $11.45 billion? Thanks, but I think I’ll buy bitcoin.
The Bottom Line
Betting purely on hype is betting someone else will pay more for it.
It is possible marijuana will become a serious business, but right now the market for Tilray stock reminds me of the joke of the horse that goes into the bar, orders a drink, and is told the price is $50.
“We don’t get many horses in here,” the bartender says.
“At these prices you won’t get many more,” says the horse.
[Editors note: A previous version of this story inaccurately labeled Tilray as the first marijuana stock to go public this year. It has since been corrected.]
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.