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Meet the Newest -- and Hottest -- Marijuana Stock on the Market

By Keith Speights - Jul 23, 2018 at 2:33PM

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But can Tilray keep its sizzling early momentum going?

Day one as a publicly traded company started off with a bang for Canadian marijuana grower Tilray (TLRY). And day two continued the momentum.

In less than 48 hours, Tilray earned the designation as the hottest marijuana stock on the market. On Thursday, the company became the first marijuana company to conduct its initial public offering (IPO) on a U.S. stock exchange. Tilray joined Cronos Group (CRON -2.78%) on the Nasdaq stock exchange and Canopy Growth (CGC -18.85%) on the New York Stock Exchange. However, both Cronos and Canopy first traded publicly in Canada before listing on U.S. stock exchanges.

Most marijuana stocks have fared poorly so far in 2018. Will Tilray's sizzle soon fizzle? Here's what you need to know about the company and its prospects.

Marijuana leaf in fireworks show

Image source: Getty Images.

Introducing Tilray

Although Tilray just went public, the company's roots go back to 2013 with the founding of Lafitte Ventures, Ltd. The business was later renamed as Tilray Canada, Ltd. Tilray began providing medical cannabis in Canada in 2014 with a 60,000 square foot facility in Nanaimo, British Columbia. 

Tilray became the first Canadian marijuana grower to export medical cannabis to Europe in June 2016. That was just the beginning of the company's international expansion. By February 2017, Tilray was exporting medical cannabis to Chile and New Zealand. A few months later, the company began shipping medical cannabis to Australia and Cyprus.

Another big step for Tilray came in September 2017 with the company obtaining approval to grow cannabis in Portugal. This set the stage for Tilray to have a great hub for distributing to the rest of Europe. The company reached yet another milestone the next month with its first shipments of medical cannabis to Germany, the second-largest pharmaceutical market in the world.

Tilray's revenue totaled $20.5 million last year, a 62% jump from 2016. However, the company posted a net loss in 2017 of $7.8 million, roughly the same as it did in the previous year.

Tilray's opportunities

Canada is scheduled to open up its recreational marijuana market in October 2018. Tilray appears to be in good shape to stake a claim to a nice chunk of this market for a couple of key reasons.

First, the company should have ample production capacity. Tilray expects to have 912,000 square feet of growing space by the end of 2018. It should be noted, however, that 230,000 square feet of this total is in the company's Portugal facility. 

Second, Tilray already has supply agreements for adult-use recreational cannabis lined up with five provinces and territories -- British Columbia, Quebec, Manitoba, the Northwest Territories, and Yukon. The company anticipates signing supply agreements with Alberta, Ontario, and Atlantic-coast Canadian provinces as well.

An even greater opportunity, however, lies in global marijuana markets. Tilray currently exports to nine countries outside of Canada, the most important of which is Germany. The company also expects that it will ship medical cannabis to Brazil and Ireland in the not-too-distant future.

In addition, Tilray could generate growth if its clinical research pays off. The company currently has four clinical trials in progress evaluating cannabis products in treating chemotherapy-induced nausea and vomiting, glioblastoma (a type of brain cancer), pediatric epilepsy, and post-traumatic stress disorder.

Can its momentum continue?

Tilray's incredible momentum from its first two days trading on the stock market won't last. But expecting any stock to deliver gains of 30% or more every day is absurd. But can Tilray's share price continue to climb, albeit at a less frenzied pace? Maybe.

I think Tilray belongs to the club of top marijuana growers such as Canopy Growth, Aurora Cannabis (ACB -4.75%), Aphria (NASDAQOTH: APHQF), and Cronos Group. Like these other companies, Tilray is likely to enjoy huge revenue growth once the Canadian recreational marijuana market opens for business.

However, also like these others, Tilray's valuation reflects enormous expectations of growth. A supply glut will eventually hit the Canadian market, probably by 2020. The question for Tilray then will be whether or not global marijuana markets will expand quickly enough to enable the company to grow enough to justify its high stock price. I'm not sure if they will

Tilray can legitimately claim to be a leader in an industry that has significant growth prospects over the long run. Just how big those growth prospects really will be and how long it will take remains to be seen. For now, though, Tilray deserves its moment in the sun as the newest and the hottest marijuana stock on the market. 

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Stocks Mentioned

Tilray Stock Quote
Aurora Cannabis Stock Quote
Aurora Cannabis
$1.30 (-4.75%) $0.07
Canopy Growth Stock Quote
Canopy Growth
$2.84 (-18.85%) $0.66
Cronos Group Stock Quote
Cronos Group
$2.80 (-2.78%) $0.08

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