Luke Lango Issues Dire Warning

A $15.7 trillion tech melt could be triggered as soon as June 14th… Now is the time to prepare.

Tue, June 6 at 7:00PM ET

Is Tilray Stock a Must-Buy Following New Partnership?

Tilray stock - Is Tilray Stock a Must-Buy Following New Partnership?

Source: Shutterstock

A number of cannabis stocks have been on the move lately and large well-known companies aren’t ignoring them either. Tilray (NASDAQ:TLRY) has been a volatile one, but has become quite tradable lately. Tilray stock caught a boost on Tuesday following a partnership deal with Sandoz. Is that enough of a reason to buy?

Sandoz is a business unit belonging to Novartis (NYSE:NVS), the latest large-cap company to get involved with the cannabis industry. Novartis’ move follows Constellation Brands (NYSE:STZ) taking a 40% stake in Canopy Growth (NYSE:CGC) — the so-called blue-chip pot stock in the group — and after Altria (NYSE:MO) took a $1.8 billion stake in Cronos Group (NASDAQ:CRON).

Not to say that retail investors don’t do their own homework. But I put much more trust in a company like Altria or Constellation Brands. They’re plunking down billions to get a stake in these firms. While it’s always possible that it won’t pan out, it’s a confidence booster to see these companies interested in getting some skin in the game via the same investment vehicles (stocks) that everyday retail traders can buy.

So Is Tilray Stock a Buy Right Now?

When the deal with Novartis was announced, Tilray stock rallied more than 16% in response to the partnership. TLRY and Sandoz are working on distributing non-smokable medical cannabis products around the globe. In fact, the two companies have worked together before, co-branding eight products in Canada since March.

However, this step takes their partnership to another level, suggesting the two companies enjoy working together and leveraging several synergies. This appears to be the trend that the market is going in — larger companies entering the space via partnerships and/or equity stakes.

As countries like Canada and individual states in the United States continue to decriminalize marijuana, they are also legalizing the drug for recreational and medical use. That bodes well for Canopy, Tilray, New Age Beverages (NASDAQ:NBEV) and a number of others.

As big-time companies came in with their billions and as investors bought into the hype, many of these names became inflated. Now that they’re cooling off, they’re starting to look more attractive. I personally like CGC the most, but Tilray stock has been attracting some attention with its ~$7 billion market cap. It’s monstrous move from $30 to $300 in about a month’s time also landed the name squarely on investors’ radar.

There’s an obvious “rush ahead” to buy these names knowing that, while they may suffer considerable downside in the short-term, they’re multi-year outlooks are quite promising. As countries and states continue to get on board, it will surely result in a sales boom.

So what’s it look like for TLRY?

Analysts expect sales of roughly $40 million this year before ballooning more than 200% to $133 million in 2019. That still leaves Tilray stock at a tough-to-swallow 52 times next year’s sales.

Trading TLRY Stock

chart of Tilray stock
Source: Chart courtesy of

Like I said, it’s clear this isn’t a cheap stock. While Tilray and the rest of the cannabis industry have a lot of momentum at their back, now is not exactly a great time to be long overvalued, volatile stocks. If the market can get back to its bullish ways, then cannabis stocks will likely find buyers. Otherwise, they might head lower with the rest of the market, until some of the longer-term trends and catalysts start to play a larger role in their business.

Remember, this is a $7 billion company with $40 million in expected sales this year.

Anyway, onto the charts. Tilray stock is currently trapped in a prolonged downtrend, bouncing between downtrend support (black line) and downtrend resistance (blue line). The 100-day moving average recently showed up, currently near $95.

Short-term bulls can bet on TLRY stock when it’s at or close to downtrend support and sell on rallies and/or on a retest of downtrend resistance. Bears can implement the opposite strategy, meaning go short at resistance and cover on declines and/or on retests of downtrend support.

On a close over downtrend resistance, bulls can get interested on the long side and look for an extended breakout rally. A close below downtrend support will likely draw in the bears for an extended breakdown. Whatever bias you have with Tilray stock or any other name, just remember to be flexible if you’re trading it.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC