What happened

Shares of the Canadian marijuana grower Tilray (NASDAQ:TLRY) gained a jaw-dropping 184% last month, according to data from S&P Global Market Intelligence. What sparked this monstrous move higher?

Tilray's shares burst higher last month in response to two key events:

  • The Canadian adult-use recreational marijuana market is set to open up this October. As such, Tilray's revenues are projected to grow exponentially over the next few years, perhaps reaching a staggering $500 million as soon as 2021, according to some analysts.   
  • Tilray's shares have also benefited from the growing interest among alcoholic beverage makers in forming partnerships with established Canadian marijuana producers. For example, this nascent industry has already seen two major partnering deals come to fruition within just the last few months. So as Canada's fifth-largest cannabis company by production capacity, Tilray seems to stand a fairly good chance at being the next company to strike a deal.
Jars of dried marijuana flowers.

Image Source: Getty Images.

So what

The catch here is that Tilray's premium valuation isn't supported by its underlying fundamentals -- that is, unless the company does obtain a multibillion-dollar partnering deal soon. As things stand now, after all, Tilray's shares are presently trading at nearly 40-times the company's projected revenue haul for 2019. No matter how you slice it, that's a rather rich valuation. 

Now what

Given Tilray's sky-high valuation, investors may want to shy away from this high-flying name for the time being. There's no guarantee that Tilray is close to drumming up a major partnership with a big-time beverage maker, and there are several other names in the cannabis space that offer far more compelling valuations, after all. 

 

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.