Tilray Stock Almost Certainly Has Another Serious Watering-Down Ahead

Tilray (NASDAQ:TLRY) has survived the twists and turns of the modern marijuana market and remains one of its larger players, by revenue. But TLRY stock is a different story altogether.

Tilray (TLRY) logo on a web browser.
Source: Jarretera / Shutterstock.com

Today’s Tilray is the result of a May merger with Aphria, another marijuana producer.

I had called Aphria the best of a bad lot in late 2019 and that seems about right.

Aphria shareholders have 62% of the combined company and control its board. Trouble is, this is still a bad lot for investors.

After a brief pop that took it to $63/share, Tilray has settled back into its trading range, opening June 14 at about $20/share. That’s a market cap of $8.8 billion on revenue I estimate at about $650 million for the combined companies.

A Closer Look TLRY Stock

Pot stocks have always told a similar story. It’s going to be legal. The legal market will be built around brands and a broad product line.

The story has not come true. U.S. legalization is a state-by-state affair, going in fits-and-starts. What seemed like momentum after the November election quickly faded. Some 16 states have decriminalized marijuana now, but nationally it remains a Class 1 drug, like LSD and heroin.

This means producers like Tilray remain based in Canada and somewhat closeted. Large employers, including Amazon.Com (NASDAQ:AMZN), no longer test employees for the drug.

A bill to legalize pot nationally was introduced in 2019 and re-introduced in May, but it remains a Democratic project. The current bill reflects Democratic priorities like social justice that Republicans don’t share.

The result is that marijuana is effectively decriminalized in most places. In practice, it means companies like Tilray must still compete with illegal growers who can sell the product for less. The illegal product also lacks the smell of corporate hypocrisy.

Tilray and the Numbers

This doesn’t mean people aren’t still flogging TLRY stock. They are.

Cantor Fitzgerald, for instance, recently upgraded Tilray to overweight. They also lowered their price target to $22. It should open today just shy of $18.

Jefferies has also upgraded the Tilray-Aphria combination, saying it could top $32/share, a 60% gain. That also sounds great, but it’s below where Tilray traded two years ago.

Then there are the Redditors who recently took a shine to Tilray stock. They have a lot of new call options on the table over the next two weeks. CEO Irwin Jacobs said on CNBC recently that he welcomes his new Reddit overlords.

But this move too may also be less than it seems.  That’s because 29% of Tilray was being held short on June 11. A short squeeze indicates speculative interest, not improving investor sentiment.

Management wants new investors. They hiked the potential share count after the merger, to nearly 1 billion. That may mean new acquisitions are in the future. But if Tilray stock stays strong, it could also mean new shares will be sold, watering down current shareholders.

The Bottom Line

Our Will Ashworth recently called Tilray “a better investment than a year ago” and he’s right.

That doesn’t make it a good investment.

Legal pot still has the same problems it did a year ago. Legislators are effectively decriminalizing it, allowing illegal growers to make some money. But there’s continuing resistance to corporate pot. Congress seems divided between those who prefer the status quo and those who see pot as some sort of social justice cause.

Online gaming and sports gambling are advancing because states need the tax money. Marijuana is moving ahead because states don’t want to spend money fighting it anymore. That’s not a recipe for success in corporate pot. Just the opposite.

On the date of publication, Dana Blankenhorn held LONG positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future which covers technology, markets, and politics.

Article printed from InvestorPlace Media, https://investorplace.com/2021/06/tlry-stock-almost-certainly-has-another-serious-watering-down-ahead/.

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