Pot stocks like Tilray (TLRY) have very ambitious valuations but the potential upside (in mergers and, fundamentally in food, drink, supplemental and medical applications) are undeniably immense. The view of a possible rapid rise in revenues and profits (albeit from a low base) provide the chance for rather steep upside opportunities and the possibility that the speculative fervor (that has characterized the pot space over the last few years) may be resuscitated again sometime in 2019.
Thematically, I expect, in a world of slowing global growth, a rather large possible upside opportunity in pot stocks (just like Amazon (AMZN) and Alphabet (GOOGL) ) could become highly valued and embraced this year.
As to Tilray, specifically -- the company will likely be one of a number of winners in the pot space -- particularly in light of its associations with Novartis (NVS) , Privateer Holdings and AB InBev (BUD) .
That said, I do not own the stock. (I have traded it from the short side when it made that silly move to $300/share last year.)
Though I recognize TLRY is an early stage company (in which sizable investments in clinical trials and infrastructure build are being made now to drive future growth), results in the quarter were still a bit disappointing. Sales were about one quarter (or $5 million) below some ambitious estimates. The EBITDA loss of nearly $18 million were also worse (-$4 million) than expected.
I haven't done a deep research dive on the company but here are four issues that keep me from buying:
- Tilray will not be cash flow positive for another 2-3 years - that's not quick enough progress for me given its $7 billion dollar capitalization.
- We might be some time away from U.S. legalization of marijuana so the domestic opportunity will be limited to hemp foods (Manitoba Harvest is already in a large number of retail outlets in our country) and CBD products (e.g., tinctures and sprays to be launched in 3-4 months).
- Canadian competition is fierce today.
- Insider sales is a bit worrisome.
I prefer Canopy Growth (CGC) in the pot space. (I sold the stock for a large profit in January and I am awaiting a selloff to reload). The stock was placed on my Best Ideas List during the first week of January, 2019 at $27.75. (It closed yesterday at $45.69.)
(This commentary originally appeared on Real Money Pro on March 19. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
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