Tilray, Inc. (TLRY) is surging more than 50% in premarket trading, building on a remarkable 29% gain Tuesday, after gaining DEA approval to import a cannabinoid drug into the United States.
Tilray stock has gained over 900% since its IPO in July.
The newest catalyst in the approval, which was announced early on Tuesday, slates a clinical trial at the University of California San Diego to research the two active ingredients in marijuana, cannabidiol (CBD) and tetrahydrocannabinol (THC), for treatment of the neurological disorder essential tremor.
TheStreet's Tony Owusu pointed out that the market is likely reacting bullishly as Tilray becomes the first Canadian cannabis company to enter the United States with this move.
The stock is certainly reaping the rewards of its first mover status so far.
Bad High for Shorts
Tilray's renewed meteoric rise this week is a bad high for short-sellers.
"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 borrow rates on existing shorts are charging a 211% fee, with new borrows as high as 700% fee. It's not cheap to be a pessimist.
As the company's valuation continues to baffle experts amid its persistent stock rise, short-sellers might need to reassess their negative outlook as they've lost $625 million in mark-to-market losses since August, according to Dusaniwsky.
"I badly want to be the person that calls the top in red-hot cannabis stocks, but fear looking like a short-term dope," Brian Sozzi wrote in Real Money Columnist Conversations Wednesday morning. "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.
Too High, Too Fast?
To be sure, shorts getting crushed on Tilray does not indicate it is appropriately valued, nor does it signal an ideal time to get in on the stock.
Both Action Alerts Plus portfolio manager Jim Cramer and Real Money Contributor James "Rev Shark" Deporre have warned of the euphoria that investors seem to have in weed investing.
"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 some patience will be required for investors seeking a sustained high.
"Expectations are extremely high, and it may require some patience to find attractive entry points," DePorre wrote in a column on Monday.