Can Canadian cannabis producer Tilray (NASDAQ:TLRY) get its mojo back? Once-hot TLRY stock is down more than 62% over the past three months, compared to the 16.9% decline for pot sector tracker ETFMG Alternative Harvest ETF (NYSEARCA:MJ). The shares are the top holding in the exchange-traded fund’s (ETF) 31-stock portfolio.
Investors are hoping that the Toronto-based company can finally turn itself around now that it is officially the biggest Canadian marijuana producer following the completion of its merger with former rival Aphria.
The newly merged company, which retains the Tilray name and brand, is now larger than other major cannabis companies such as Canopy Growth (NASDAQ:CGC) and Aurora Cannabis (NYSE:ACB) with annual revenues approaching $1 billion and a 17% share of the North American retail cannabis market.
As the recreational cannabis space continues to evolve, mature and consolidate, shareholders are expecting the newly reinforced Tilray to not only survive but to thrive.
TLRY Stock Highs and Lows
The completed merger with Aphria has given Tilray and its stock a much needed lift. TLRY stock popped 14% immediately following news that the merger had successfully concluded and investment bank Jefferies Group immediately upgraded the company’s shares to “buy” from “underperform,” calling the merger with Aphria a “perfect match” and stating that Tilray has excellent upside potential in terms of future sales in the U.S., Canada and Europe.
The positive response to the merger was welcome by Tilray shareholders who have been on a wild ride with the stock so far this year. In early February, TLRY stock was targeted for a short squeeze by the retail investors who commiserate on Reddit. In a concerted effort, they drove Tilray’s share price up 253%, from $25.77 on Jan. 29 to a peak of $90.99 on Feb. 10. The stock was back down to $30 a share by March 5 and today trades at $14.53.
Sadly, this was not the first time Tilray stock had gotten caught in a short squeeze. The same thing happened in 2018, when the share price was driven 1,400% higher.
Targeting U.S. Market
Post-merger, Tilray is now being run by the senior leadership team that previously ran Aphria. While the merged company retains the Tilray name, it is now former Aphria CEO Irwin Simon running the show. Former Tilray CEO Brendan Kennedy has relinquished his management role and now serves only on the company’s board of directors.
Moving forward, Tilray has said its immediate priorities are to finalize the merger internally and to focus its sales efforts on the U.S. market, where it sees a huge opportunity.
Simon has said Tilray’s ambition is to eventually control 30% of the North American cannabis market. With more U.S. states legalizing cannabis (18 states in total have now legalized the drug for recreational use) and hope that the Biden administration may legalize the recreational drug at the federal level, Tilray is eager to expand in the U.S. with an array of products that include cannabis-infused beverages and edibles.
Much of Tilray’s international expansion focuses on a mix of recreational and medicinal cannabis products.
Not Yet Stable Investment
A lot continues to happen in the cannabis space and there’s no question that Tilray is a stronger and more resilient company after its merger with Aphria. However, the cannabis sector continues to evolve and change rapidly. A lot still needs to happen before cannabis can be considered a stable and mature investment. And this fact is reflected in TLRY stock, which continues to hover around $15 and struggles to stay above the $20 per share threshold.
While some investors have upgraded Tilray’s shares in recent weeks, others have downgraded the stock, stating that the merger and the company’s current market share are already baked into the stock price.
The company’s earnings also continue to disappoint investors and analysts. Given that more consolidation and regulatory changes are likely in the broader cannabis sector, investors would be smart to keep TLRY stock on their watchlist for now and be ready to buy shares quickly if it looks like a legitimate breakout occurs.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.