With the exception of its very earliest buyers following the July initial public offering, Tilray (NASDAQ:TLRY) speculators have to be disappointed. While shares got started on a bullish foot, since peaking in October, Tilray stock has been more than halved. Other marijuana stocks are firmly up for that timeframe, even if they haven’t moved higher in a straight line.
But if the shape of the TLRY stock chart is any indication, shareholders may want to grab onto something: things may get much worse from here.
The $64,000 question is, what makes this name so weak relative to other names in the exact same business? After all, they’re almost carbon copies of each other!
TLRY Is Decidedly Unpopular
This graphic tells the tale.
Click to EnlargeAfter peers Canopy Growth (NYSE:CGC), Cronos Group (NASDAQ:CRON) and Aurora Cannabis (NYSE:ACB) all enjoyed “marijuana mania” in August to September of last year, the buying frenzy cooled.
The second wave began in late October and burst onto the scene again in January. However, neither time did Tilray stock meaningfully advantage the group-wide rally.
The daily chart of TLRY stock alone is even more alarming. Although difficult to see from a distance, this week, Tilray stock has fallen to new multi-month lows, breaking under December’s low of $64.06. A falling resistance line has guided that effort.
Click to EnlargeIt is, to put it bluntly, the last kind of chart any shareholder would want to see. Admittedly, it may not jive with the prevalent and seemingly-bullish headlines. But what the market is doing says far more about perceptions than what a stock is supposed to be doing.
Fans and followers of Tilray will be quick to point out — and rightfully so — Tilray stock is being heavily shorted, or bet against by traders anticipating lower lows from the stock. As of the most recent tally, roughly one-fourth of this company’s float has been shorted. But adding that detail glosses over a key point: right or wrong, the bears are taking a toll, and the bulls aren’t fighting back.
The question remains, though …why?
TLRY Stock Brings Complications
There are answers to the question, but they’re in layers and levels.
In the most superficial sense, CEO Brendan Kennedy’s comments likely spooked current and would-be owners of Tilray stock. During the company’s March earnings call, he stated:
Over the next 18 months, we believe there will be oversupply [in Canada], just as we have seen in certain U.S. states, as operators in new legal markets race and government regulators catch up to find an equilibrium between supply and demand… We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.
It’s a less-than-thrilling take from a marijuana player. That doesn’t mean Kennedy was wrong. But marijuana stocks have relied heavily on rhetoric rather than results to justify outrageous valuations. Here’s a sector name that threw investors their first real curveball.
Of course, a closer look at the chart of TLRY stock makes clear that investors were losing interest well before Kennedy’s comments made in March.
Investors Should Worry About the Fine Print
While rarely brought up, the major investors that ultimately control the market tend to do more digging and due diligence than the average retail investor. This so-called “smart money” crowd may be hesitant to get involved in a company with a confusing capitalization. That is, private equity fund Privateer owns roughly 80% of Tilray stock. At the same time, Tilray CEO Brendan Kennedy also heads Privateer.
It’s an awful lot of control of a company for one individual to wield.
Kennedy has promised Privateer won’t sell any TLRY stock in the first half of 2019. However, no one has said anything about selling once the second half arrives.
And then there’s Jefferies’ take. Analyst Owen Bennett initiated coverage of the cannabis outfit a month ago, rating TLRY stock at “underperform” and explaining:
We’d suggest the names that Tilray needs to be compared to are Canopy (CGC) and Aurora (ACB). To this, when analyzing the business we think there are a number of areas where Tilray is lacking vs. its closest peers… [Tilray’s] approach to recreational does not appear as well thought through, capacity could be limiting, positioning for derivatives does not stand out amongst peer best, and optionality in the U.S. is less impressive.
Rough words, but words that weren’t refuted.
Bottom Line for Tilray Stock
Any one of these red flags by themselves might not serve as a drag on the company, or TLRY stock. But collectively, they’re enough to take the wind out of the equity’s sails.
Considering that the cannabis dance thus far has been more about storytelling and pumping up hope rather than proving that a profitable market exists, any dose of reality is inevitably going to work against Tilray stock. That’s true even if most traders can’t quite articulate why. This is more evidence that flimsy pillars of hype and hope drove marijuana mania.
Or maybe there’s just not enough room for yet another marijuana stock on the market landscape.
Whatever the case, there’s no getting around the fact that looking for a way to jump into TLRY shares now is tantamount to catching a falling knife. The market has not only spoken, it’s still speaking.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.