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article imageTilray stock rise — 'No basis in reality for these valuations'

By Karen Graham     Sep 20, 2018 in Business
Nanaimo - After Canadian cannabis company Tilray announced on Tuesday the company had gotten approval to export a cannabis pill to California for a clinical trial, Wall Street went crazy - forcing Nasdaq to shut down trading in the company five times.
Tilray has become the King of Pot, according to Bloomberg, almost like the Cinderella story of our childhood. Two months ago, Tilray was a little blip on the radar in the sleepy British Columbia town of Nanaimo.
The thing is, you would have never known that Wednesday. The company's stock opened at $211 US Wednesday, and before being halted it flirted with the $300 level. That was in the last hour of trading, however, when circuit breakers shut down trading five separate times.
Tilray's stock has soared more than 10-fold since its initial public offering (IPO) in July, knocking Canopy Growth out of its number one position as the world’s largest marijuana company. Today, Tilray is worth over $15 billion. Canopy Growth was valued at just under $11 billion on the New York Stock Exchange Wednesday afternoon.
During his interview on Mad Money Tuesday night, Tilray CEO Brendan Kennedy gave his perspective on the wild growth of interest in cannabis stocks. Kennedy stated that the world’s largest pharmaceutical companies must start thinking about partnering with cannabis producers as a “hedge” against the space. He also noted that the company has set its sights on America, with Canada acting only as a stepping stone to the massive market south of the border.
Is the pot bubble ready to burst?
CBC Canada notes that TSX-listed Canopy, based in Smiths Falls, Ontario is still the biggest marijuana company in the world in terms of production and sales, but all the hype surrounding Tilray has driven up its market value, and this is a big concern for many market experts.
Commenting on Tilray stock's wild ride on Wednesday, Canaccord Genuity analyst Matt Bottomley said, “I think they’re perceived as having a very strong management team and it’s one of only three Canadian (pot) stocks that have a U.S. listing, I think it’s the sentiment and excitement and a bit of scarcity of stocks in the U.S.”
To say there's a "bit of a scarcity " in stocks is an understatement. Tilray is controlled by Seattle-based Privateer Holdings, which was founded by Brendan Kennedy, Michael Blue and Christian Groh in 2010 to invest in the cannabis sector. Privateer controls 76 percent of the company, leaving just 10 million shares for trading in the public float.
Privateer’s stake in Tilray was valued at $7.9 billion as of 12:15 p.m. in New York on Wednesday, giving each founder a net worth of at least $2.6 billion, assuming they hold equal stakes. Billionaire Peter Thiel is among Privateer’s backers.
In the hands of the short-sellers
But looking at those 10 million shares available for trading leads to some interesting problems, leaving the experts to worry about marijuana stocks being a "bubble in the making."
With so few shares available, they are ripe for picking by the short-sellers that are ever present - investors who bet that a stock will go down, and are building big positions in Tilray and other cannabis stocks.
"The cannabis rally may be on its last drags," said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, a research firm that focuses on short selling, in a report this week. And his views are shared by others.
Micah Tapman, managing director of CanopyVentures, a private equity firm focused on the cannabis industry that has invested in marijuana market research firm BDS Analytics, told CNNMoney investors are getting a little too optimistic about Tilray.
Tapman calls it a "classic case of FOMO — the fear of missing out." He says that unless the U.S. legalizes marijuana for recreational use, the current price of cannabis stocks is just way too high. "There is no basis in reality for these valuations," Tapman said. "They are not necessarily bad companies. But the projections are delusional."
As for Tilray, they haven't done badly at all - especially for a company that's only expected to generate sales of $41 million this year.
More about tilray, Nasdaq, shortsellers, bubble in the making, Marijuana
 
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