Tilray (TLRY 263.34, +108.36, +69.92%) has traded up to astonishing new all-time highs after CEO Brendan Kennedy appeared on CNBC's Mad Money last night.
The company's valuation has become increasingly difficult to justify in recent sessions as the stock has extended its parabolic move.
Tilray's market capitalization eclipsed $20 bln this morning, which means the stock was trading at ~500x sales estimates for this year and ~130x sales estimates for next year. At $200/share, Tilray was worth more than almost half of the companies in the S&P 500. The index trades at 2.4x this year's sales, on average.
Clearly, the market is focused on the company's long-term potential in the burgeoning field of cannabis, where jurisdictions are opening up for both medicinal and recreational purposes.
Still, the stock certainly seems to have gotten ahead of itself at these levels.
Almost every day, positive news in the sector has led to continued momentum in the stock.
Last week, the Medical Cannabis Research Act passed the House Judiciary Committee. The bill, which encourages new clinical trials by facilitating a slight increase in the number of federally-approved manufacturers and growers of research-grade marijuana, seems to have bipartisan support, but there is currently no timeline established for its move to a full vote in the House of Representatives.
On Monday, Bloomberg reported Coca-Cola (KO) was interested in partnering with Tilray peer Aurora Cannbis (ACBFF) on CBD beverages.
Yesterday, Tilray announced that the U.S. Drug Enforcement Administration (DEA) granted approval to import a cannabinoid study drug into the United States from Canada for a clinical trial at the University of California San Diego Center for Medicinal Cannabis Research examining its safety, tolerability, and efficacy for treatment of Essential Tremor, a neurological movement disorder characterized by rhythmic and involuntary shaking that afflicts a reported 4.6%-6.3% of those aged 65 and above.
Last night, Tilray Chief Executive Brendan Kennedy appeared on CNBC's Mad Money.
He acknowledged that the company will need more capital (as disclosed in the company's IPO prospectus from July). Mr. Kennedy also repeated his viewpoint that pharmaceutical, food, beverage, and tobacco companies want to get involved in the cannabis industry because the opportunity is so large.
Tilray's CEO said that the company doesn't want to partner with an Anheuser-Busch InBev (BUD) -- it wants to build its own industry giant.
He previously said that the company is well-positioned to take sizeable share of a market approaching $150 bln with a 50% gross margin and 25-30% EBITDA margins.
Tilray is already partnered with a unit of Novartis (NVS) for pharmaceutical ventures.
Alcohol giant Constellation's (STZ) investment in Canopy Growth (CGC) sparked a fire in the space on August 15. TLRY is up some 800% since that deal was announced.
Much of the recent surge may be attributed to speculation that large companies are circling Tilray for a potential investment. At the current valuation, a deal could result in a sell-the-news reaction as the stock would no longer be 'in play' after a big investment.
The stock's surge could also be explained by a simple supply-demand imbalance. The stock's float, or shares available to trade, is quite small. Meanwhile, there appears to be insatiable demand for the stock, especially from retail investors. Hot IPOs that surge in parabolic fashion tend to top out within a few months (see the charts of GPRO and SHAK).
However, Tilray's surge is not based on current sales growth, but rather the company's enormous potential longer-term. Still, the stock is now up over 1,100% in two months since the IPO. The surge seems rather unsustainable, as momentum can reverse itself on short notice.
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