Weed Stock Tilray Jumps 19% --- Making It Look Even More Overvalued
(Source: barrons.com)

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(Original link: barrons.com)

Weed Stock Tilray Jumps 19% — Making It Look Even More Overvalued By Updated Jan. 11, 2019 6:12 p.m. ET Order Reprints Photograph by Uriel Sinai/Getty Images Text size
The stock of pot-producer Tilray soared Friday, after the private-equity firm that is the company’s controlling stockholder announced that it won’t sell shares when Tilray’s IPO lockup expires on Tuesday, Jan. 15. The cannabis company’s stock had been clouded by fears of potential stock sales by Privateer Holdings, a Seattle-based private-equity firm that’s backed by billionaire investor Peter Thiel, and whose principals include Tilray CEO Brendan Kennedy.
By Friday’s close, Tilray stock (ticker: TLRY) had traded five times its recent average daily trading volume, rising 19% to $96.
“Privateer Holdings strongly believes in Tilray’s long-term global growth strategy and pioneering role in shaping the future of the legal cannabis industry,” said Privateer’s managing partner Michael Blue, in a brief public statement. He said that Privateer doesn’t plan to sell stock in the first half of 2019. Newsletter Sign-up
Privateer holds 77% of the outstanding shares of Nanaimo, British Columbia-based Tilray. The private-equity firm says that it has raised about $200 million to invest in cannabis ventures like Tilray. So far, so good. The $40 million that Tilray filings say were spent by Privateer for its stake are now worth $7 billion—not counting the value of Privateer’s absolute control over the pot producer.
“When we decide to distribute shares,” said Blue, “We will do so in an orderly and deliberate manner to maximize tax-efficiency considerations for Privateer investors, while also taking into consideration potential impacts on Tilray’s public float.”
The U.S. investment bank Cowen (COWN) was Tilray’s banker when the cannabis company came public for $17 a share in July, and the stock’s move lifts the banker’s piece of Tilray to a value of $17 million. The stake cost Cowen about $1 million.
Although Tilray’s volatile shares are a far sight below the $300 peak they reached when a Bitcoin-like frenzy seized the cannabis sector in September, the stocks of Tilray and such rivals as Canopy Growth (CGC) and Aurora Cannabis (ACB) have been rising for several days. Analysts at Piper Jaffray and Cowen got behind both Canopy and Tilray this week, in bullish recommendations that say growers will overcome the production problems that have caused shortages since Canada began recreational pot sales on Oct. 17. Most cannabis stocks fell by half, on the ensuing bad vibes.
Tilray bull must make giddy projections to recommend the stock here. At a market capitalization near $9 billion, Tilray is valued at more than 200-times the annualized amount of the unprofitable company’s September quarter sales.
And pot prices are falling fast. Friday, rival Aphria (APHA) reported that its gross margins had shrunk as its average selling price per kilogram in Canada had fallen 8% over the course of its November quarter, to C$6.54. Tilray’s average price in its September period was C$7.98. The Canadian provincial government wholesalers have told companies like Tilray that prices must fall further, if legal sales are to take share from marijuana’s black market.
But shortsellers have probably taking their bets off the sector, after the December quarter selloff. Aphria also said that its chief executive, Vic Neufeld, will step down . That news prompted a cessation of hostilities by Quintessential Capital Management, a hedge fund whose criticisms clobbered Aphria shares last month. Quintessential said it is moving on to new projects.
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