Just days before the merger between Tilray (NASDAQ:TLRY) and Aphria, which made the combined entity the largest cannabis company by revenue, Time named Tilray to the 2021 Time100 Most Influential Companies list. One would think that kind of scale would make TLRY stock an automatic buy.
Maybe. Maybe not. I’ll look at the why and why not to own the latest exercise in mergers and acquisitions. By the end, I think you’ll be able to make up your own mind about the merger value or lack thereof.
The Price Is Right for TLRY Stock
The last time I wrote about both cannabis companies was in the middle of March. At the time, I concluded that there would be plenty of room for the combined entity to thrive in the Canadian cannabis-infused beverages market. I considered it an excellent long-term buy.
While I factored into the equation Aphria’s Sweetwater Brewing business, I had completely forgotten about Tilray bringing Fluent Beverage, the company’s joint venture to make cannabis beverages with Anheuser-Busch InBev (NYSE:BUD), to the table.
Each of the companies owns 50% of the joint venture. The first drinks rolled off the lines in December 2019 under the Everie brand name. Everie sells both CBD-infused sparkling beverages and tea bags to the Nova Scotia Liquor Commission. I’ll have to check its products out. However, none of the products possess more than a trace of THC.
Tilray’s beverage game is good and likely to get even better, according to CEO Irwin Simon. As I said in March, Simon believes that cannabis-infused drinks will be as big as the hard seltzer market. I don’t know if I’d go that big, but there will be plenty of money to be made by the company.
My InvestorPlace colleague, Mark Hake, suggested TLRY stock would fall once the merger was completed. He was bang-on. Tilray shareholders approved the deal on April 30 and it closed on May 3. From its high on April 30, it lost 24.6% of its value over the next eight days of trading.
I liked Aphria stock more than Tilray pre-merger. Together, I think it can do a lot of good things. I like TLRY stock at under $15, its lowest point since early 2021.
It’s Not Finished Falling
On May 12, TLRY dropped 5.5%, with the NASDAQ Composite down 1.4% on the same day. Since hitting its 2021 high of $67 on Feb. 10, TLRY has lost nearly 80% of its value.
That’s one heck of a drawdown.
However, the markets appear to be moving into rougher waters. U.S. stocks were down for the third consecutive day on May 12 as investors worried about inflation, which could derail the economic recovery. May 13 saw the market begin to bounce back, though not to their beginning-of-the-week levels.
And while tech stocks are leading the downward spiral, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ), the largest U.S.-listed marijuana exchange traded fund (ETF) by assets, is down 8.1% through the first three days of the week’s (May 10-14) trading.
In other words, with the company-specific risk Tilray possesses — it has combined annual losses well over $500 million — the downward pressure on its stock will be much greater than MJ’s more diversified portfolio of 31 stocks.
Speaking of MJ, Tilray now accounts for 13.4% of its portfolio, almost three times the weighting of the second-largest holding — GrowGeneration (NASDAQ:GRWG) — at 5.5%.
You know what they say, “You can’t fight the trend.”
Tilray will either bounce between $14 and $16 for the next few weeks as investors wait for positive news, or it will break through below $14 as it did briefly on May 11.
Is TLRY a falling knife? It very well could be.
The Bottom Line
Is being named to the 2021 Time100 Most Influential Companies list a reason to buy Tilray stock? No, not in and of itself, it’s not. Influence is meaningless without profits.
In the long run, I see the Tilray-Aphria tie-up being a success. In the meantime, the volatility for some might be too much to take.
For those who don’t mind a little risk with their investments, buying at these prices gets you a much better company than you would have gotten if you bought Tilray around the same price in June 2020.
That’s meaningful.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
