Initial public offerings have long held a certain mystique for investors, going all the way back more than 400 years to when the Dutch East India Company came the first “modern” IPO. They have even more of a mystique today in our always connected world of instant information.
Some of the allure is the hope for big and fast gains, though that doesn’t always work out. We saw another example of this just today as SurveyMonkey (SVMK) made its trading debut. The stock priced its IPO at $12, opened at $18.75, got as high as $20 and closed the day at $17.
One stock. One day of trading. Big difference in returns.
Those who were able to get in on the true IPO price of $12 (which means basically nobody except insiders and institutions): +42%.
Those who bought at the opening price of $18.75: -9%.
And those who bought late morning around the high of $20: -15%
Such is the nature of IPOs.
You can indeed make big money, but it involves real analysis and research. It also involves knowing the trading rhythm of stocks after they go public, pouncing at the right time, and then holding on for big gains.
The IPO of the Year
For me, the most telling IPO so far this year happened on July 19 when a small, virtually-unknown company named Tilray (TLRY) went public on the NASDAQ stock exchange.
Tilray was the first “pure play” marijuana-focused company to IPO on a major U.S. exchange. It produces medical cannabis for research and public consumption.
To say the company’s debut was a success is a gross understatement.
In the first month after going public and selling ownership stakes to individual investors, Tilray had climbed $13 per share, a 60% gain. It was a heck of a first month… and it got even better.
As investors grew more and more interested in the trend toward legalization and the $100 billion+ market that it could create, Tilray gained another $277 per share after two months of trading, a 1,237% gain over its IPO price.
It’s one of the greatest short-term wealth creation events we’ve seen in the stock market over the past decade. And although Tilray’s huge gain is easily one of the highest profile financial events of 2018, more marijuana stocks can create incredible wealth for its shareholders.
The Hot Market in Marijuana Stocks
As you read this, there is a historic boom taking place in the legal marijuana business … which in turn is creating a historic boom in legal marijuana stocks.
Medical marijuana is now legal in 30 states and Washington, D.C., and three weeks from today, recreational marijuana will become legal throughout Canada.
In 2015, the legal marijuana market was $5.4 billion in the United States. In 2017, that market exploded 57.4% to reach $8.5 billion – more money than was spent on ice cream! This year, sales should increase another 29.4% to $11 billion, and I expect this market will continue to grow significantly in the next 10 years.
Any time the government opens up a huge new market like legal marijuana, investors can win big. That’s true when it comes to companies that are already publicly traded and those that are still to come.
The historic marijuana boom should fuel a healthy marijuana IPO market for years.
We’re still in the very early innings of this game, but it has already been an interesting year for marijuana stocks and IPOs. I’ve recommended some in my newsletters, and I know there will be more big-money opportunities in the coming years as the U.S. and the world shift to legalized marijuana.
In fact, I think it’s so important to stay on top of the marijuana IPO market that I’m creating a special interactive calendar. I’ll have more details soon as we get closer to finishing it up, and I’ll also share my thoughts on how to pick the winners and avoid the losers when it comes to IPOs.