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The share price of Canadian licensed producer Tilray has seen a push in the public markets as it becomes the highest-valued cannabis company.
Shares of Tilray (NASDAQ:TLRY) and its overall market cap have stormed the cannabis public market to finally surpass industry leader Canopy Growth (NYSE:CGC,TSX:WEED).
Tilray’s market cap has risen from an original US$1.5 billion market cap since its initial public offering (IPO) debut to reach a market cap of US$10.80 billion on Thursday (September 13).
Meanwhile, Canopy’s market cap on the Toronto Stock Exchange (TSX) has reached C$13.09 billion, or roughly just over US$10 billion.
Since its IPO, Tilray’s share price has soared over 350 percent, with a significant portion of these gains coming in August.
Tilray closed the trading session on Thursday with a 14.11 increase to its stock, representing a price of US$119.76, although after hours trading brought the company’s down 7.61 percent.
Some of the growth seen by the company recently is being attributed to Tilray obtaining permission to export medical cannabis into Germany.
According to the company its cannabis extracts had been available in the European nation through partnerships with German pharmaceutical wholesalers.
Tilray a favorite for next alcohol partnership
Following the rumors of an entry from alcohol producer Diageo (NYSE:DEO) into the cannabis space, shares for Tilray quickly accelerated as the company became the one mentioned the most by financial advisors to gain some sort of alcohol partnership.
“[Tilray is] a quality name in the space and it would make a good partner for someone looking to enter [like a] beverage company,” Doug Waterson, CFO and portfolio manager with Faircourt Asset Management and manager of the Ninepoint UIT Alternative Health Fund told the Investing News Network (INN).
Cowen & Co. analyst Vivien Azer said Tilray is a natural candidate, given the positive attributes around its portfolio construction during a televised interview. The analyst also issued a research note calling the company an “attractive partner” for an alcohol company seeking to enter the space.
As part of its Q2 2018 financial report, the company shared it had produced revenue of US$9.7 million for the quarter. This income was produced from medical sales in Canada, wholesale to other Canadian producers and international sales.
Tilray has also guaranteed its product will hit the recreational market across Canada — thanks to supply agreements with Ontario, BC, Quebec, Manitoba, PEI, Nova Scotia, Yukon and the Northwest Territories — through its recreational brand subsidiary High Park Holdings.
Rise of Tilray raises questions about cannabis market valuation
With the quickly growing cannabis market, various financial advisors and observers of the public sectors have raised eyebrows at the fundamentals and reality of the space compared to current valuations and market caps.
Since cannabis won’t become legal for adult-use in Canada until October 17, these companies have received revenues from medical sales or other forms of transactions. The expectation for cannabis producers raising capital is that, once the market comes online, investors will get a better sense of what the value should be.
Charlie Bilello, director of research at Pension Partners, manager of the ATAC Rotation Fund (ATACX), tweeted charts comparing Tilray’s share and market cap with those of other more established industries.
Tilray’s market cap just passed Macy’s.
Tilray: founded in 2013 and has 330 employees and $28 million in revenue.
Macy’s: founded in 1858 and has 130,000 employees and $25 billion in revenue. pic.x.com/Q2CnwZckEx— Charlie Bilello (@charliebilello) September 13, 2018
Tilray Sales (TTM): $28 million
Under Armour Sales (TTM): $5 billionTilray Market Cap: $10.6 billion
Under Armour Market Cap: $8.9 billion pic.x.com/JL6Xb7G9rX— Charlie Bilello (@charliebilello) September 13, 2018
With these rises for cannabis stocks, comparisons to the cryptocurrency rush of 2017 and the dotcom bubble have become inevitable for the booming sector.
During the Vancouver edition of the International Cannabis Business Conference (ICBC) Nic Easley, CEO of 3C Consulting and a managing partner with Multiverse Capital, told INN investors needed to be ready for the bubble to pop.
“The bubble is caused for all the speculation and all the international markets that they can sell things to,” Easley said. He added this leads to a “curve of disillusion” from rising potential.
The executive said during a panel the cannabis bubble, in his opinion, was three times worse than the dotcom bubble.
Investor takeaway
Despite Tilray’s rush on Wednesday, the rest of the cannabis market took a hit during the trading session. The Horizons Marijuana Life Science Index ETF (TSX:HMMJ) fell 9.73 percent while the Evolve Marijuana ETF (TSX:SEED) lost C$2.21 in value, representing a 9.46 percent reduction.
The only other Canadian LP with public stock on the NASDAQ, Cronos Group (NASDAQ:CRON;SX:CRON), dipped on Thursday 10.29 and closed at a price of US$10.11 per share in the US exchange. During after hours trading the company declined an additional 3.07 percent.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.