Legal-weed company Tilray (TLRY) closed Wednesday's trading up 38.1% at $214.06 after a wild session that saw the stock briefly rise more than 90% to $300 a share.
Wednesday's gains built on a remarkable 29% increase Tuesday that stemmed from the company gaining U.S. Drug Enforcement Administration approval to import marijuana into the United States for a medical study. All told, Tilray stock has gained more than 900% since its July initial public offering.
British Columbia-based Tilray's two-day rise began after the company won DEA approval to import Canadian marijuana for a clinical trial at the University of California San Diego to test pot's two active ingredients -- cannabidiol (CBD) and tetrahydrocannabinol (THC) -- for treating tremors. TheStreet's Tony Owusu pointed out that the market likely reacted bullishly because Tilray is the first Canadian cannabis company to win U.S. approval to import pot for such a test.
The stock is certainly reaping the rewards of its first-mover status so far. Tilray is now the most valuable player in the cannabis space by market capitalization, outpacing even red-hot Canopy Growth Corp. (CGC) . Canopy fell 4.9% Wednesday, breaking a trend of cannabis stocks rising or falling in concert.
A Real Buzzkill for Shorts
Tilray's renewed meteoric rise this week is a buzzkill for those who've shorted the stock.
"The bad trip for cannabis shorts continues with TLRY U.S. trade pact," Ihor Dusaniwsky, managing director of predictive analytics at S3 partners, tweeted Tuesday. "TLRY Shorts are down $57 million in mark-to-market losses. Other pot shorts are down $50 million."
He added that stock-borrowing fees on existing shorts are 211%, with new borrowers facing rates as high as 700%. It's not cheap to be a pessimist, and short-sellers might need to reassess their negative outlook. According to Dusaniwsky, they've lost $625 million in mark-to-market losses since August as the company's valuation continues to baffle experts.
One such short-seller is Andrew Left's Citron Research, which was vocal on Twitter in its disbelief at Tilray's leap:
The move in Tilray is beyond comprehension. No one needs a market pundit to explain that. This is just the dynamic of trading low float stocks. Yes we are short and will hold a manageable position until rationality sets in
— Citron Research (@CitronResearch) September 19, 2018
Citron previously added:
Citron LOVED $TLRY at $26 but now we are SHORTING stock. Cowen lowered est and still raised tgt $62 only shows "RETAIL INVESTORS GONE MAD" and forgot $TLRY went public at $17 - 6 weeks ago. We would expect an equity raise at these levels. By far most expensive in space.
— Citron Research (@CitronResearch) September 4, 2018
Real Money's Brian Sozzi wrote in our Columnist Conversations on Wednesday morning that "I badly want to be the person that calls the top in red-hot cannabis stocks, but fear looking like a short-term dope. So why bother? I will say that the top is coming, because seeing Tilray valued at $14.5 billion after delivering $9.7 million in second-quarter 2018 sales is insane."
Unfortunately for short-sellers, none have been able to tell exactly when this top is coming.
Volatility and Volume
Tilray's strong day was not without its volatile moments.
For instance, the stock at one point the stock shot up to nearly a 100% gain on the day only to drop down to negative territory a few minutes later. TLRY shares were also halted five times during the session and swung around amid huge volume, with 31.5 million shares traded -- or nearly four times Tilray's recent average.
Real Money columnist James "Rev Shark" DePorre argues that investors are trading on sentiment rather than on the stock itself.
"Tilray is similar to other crazy momentum plays in the past, such as Internet stocks, shipping names such as DryShips Inc. (DRYS) , rare earth metals, solar energy and many others," he wrote. "If you are playing Tilray, just be aware that you aren't trading a stock. Rather, you are betting on what other traders might do."
Too High?
Both DePorre and Action Alerts Plus Portfolio Manager Jim Cramer have warned that investors have too much euphoria about legal weed.
"Do not chase these stocks," Cramer said earlier this week, making clear that chasing the high at this point will likely leave traders with a bad trip.
DePorre agreed, asserting that investors need to show some patience if they want a sustained high. "Expectations are extremely high, and it may require some patience to find attractive entry points," he wrote Monday.
But a short play isn't attractive, either, as it's tough to find shares to short. "You can't initiate Tilray at this point," columnist Stephen "Sarge" Guilfoyle told Real Money. "If you're long, set a stop somewhere up here or write a $300 Oct. 19 call for $50."
He also had grim words for short-sellers who are already locked into money-losing positions. "If you're short then no advice in the world can help you, and you'll probably be getting a call from your broker," Guilfoyle said.
