Do not blame Tilray (TLRY) .
I know a lot of skeptics are fingering Tilray for the dramatic - and foolish - run in its stock, one that has taken it from $17 to $217 with a pitstop at $300. I know that the company is not worth $20 billion.
It is total Reefer Madness.
But the thing you need to know is neither does Tilray necessarily favor what is happening.
I say that because Tilray believes the entire market for cannabis is about $150 billion. It's right in their deck. They are using the number from the United Nations World Drug report, with a notation "projections include the illicit market."
When I had CEO Brendan Kennedy on "Mad Money" and used a $500 billion market projection he didn't endorse it. If he did then I would say that he would be projecting my number, one that I got from Brian Athaide, the CEO of the Green Organic Dutchman (TGODF) , during an interview at the Green Market Report conference last Friday. I had to pull it out of this former Procter & Gamble (PG) exec - 25 years including many senior positions. He was reluctant to give such a projection but he only did so when I asked him about the size of industries that could be disrupted including medical, pet and recreational uses of all kinds from beer and coffee and tea and any other recreational use to pain killers and sleep aids. It included all cannabis products including THC use which is, for lack of a better term, like measuring the proof of alcohol.
I repeat: Kennedy did not endorse such a market size number. He was much more conservative.
To be sure there is plenty to like here. Tilray has huge advantages over other cannabis makers. It has an exclusive partnership with Sandoz Canada, a division of Novartis (NVS) , a gigantic, $216 billion company, to co-brand and co-develop medical products. Plus, it just got approval to do a U.S. trial with UC San Diego for patients in a small subset of a neurological disorders who have Essential Tremor, which is an illness that causes involuntary rhythmic shaking, the first cannabis trial authorized by the DEA.
It has real revenues, $9.75 million this last quarter and although it only has $200 million in cash versus the $6 billion in the till for rival Canopy (CGC) , that's funded mostly by Constellation (STZ) which I regard as a potential owner of Canopy when it is allowed to be without jeopardizing its ability to sell liquids with cannabis of all kinds in the U.S. Plus, most of its brands are licensed from a 76% owner, Privateer Holdings, whom Kennedy serves as Executive Chairman. You aren't buying most merchandise from Tilray when you buy shares, you are buying a license that the company has from Privateer, a suboptimal situation.
Kennedy admitted on "Mad Money" he needed more capital to keep up with the demand. He pretty much told you he will need a fund source of which his stock, through a secondary, is easily the most obvious choice.
The problem is with the shortage of the float. The company only has a 10 million shares that are trading right now from a deal done at $17. There is plenty more behind it - the company has 76 million shares outstanding, and at least 33 % is sold short, according to the most recent count.
And therein lies the rub. There is way too much shorted stock versus the retail accumulation of the stock. The market can't handle it. Blame retail investors who are too enthusiastic about the company's product, versus people like Andrew Left, from Citron, who is actively shorting the stock on valuation.
So, I say, stay away. You don't know when they will offer more stock. You don't know when the battle between the shorts and the longs is finished.
But you have to recognize that Tilray didn't create this problem. It is a recognized leader and first mover in the space that retail investors think is worth much more than it is and who believe that Canadian repeal of prohibition come October 17 will be gigantic for Canadian cannabis and will quickly lead to the repeal of prohibition in the U.S. I promise you it won't be. There's not enough infrastructure yet to make that happen.
Is this like Bitcoin? Is it like the Internet in 1999?
But is it a joke?
Not at all.
Tilray's a disruptive company for many industries.
It's just that the retail "carried away" factor is most evident and obvious, again that's not Kennedy's fault.
It's the market's fault. It can't handle the interest and it won't until the market is sated with offerings and the cannabis growth is sated with growers.
That will be when I expect the unwind and not until then but that day of reckoning may happen sooner than you think as there are plenty of companies waiting in the wings to produce cannabis. How do I know this?
It's disclosed by Kennedy, that's how. And that, again, tells me please, don't get carried away. The documents and my interview pretty much conclude that he doesn't want you to either, even as he is promoting his stock by coming on my show.
People are too excited. It will end badly because there is too much supply of both cannabis and cannabis stock coming. It just isn't ready to end yet. And that's what matters.