What happened

Shares of Tilray, Inc. (TLRY) were up 17.1% as of 11:38 a.m. EDT on Tuesday. There wasn't any news from the Canadian marijuana grower. So what caused Tilray stock to jump higher? The most likely answer is simply that investors continued to jump into major Canadian marijuana stocks ahead of the opening of the recreational marijuana market in Canada in October and in anticipation that Tilray could be selected as a partner by a major company outside the cannabis industry.

Tilray wasn't the only big Canadian marijuana grower to enjoy solid gains in early trading today. Shares of Cronos Group (CRON 0.76%) and Canopy Growth (CGC -2.29%) were up nicely as well. Like Tilray, both Cronos and Canopy should enjoy tremendous growth after the Canadian recreational market opens.

Marijuana leaf in front of pile of U.S. cash

Image source: Getty Images.

So what

Tilray is definitely on a roll. The stock skyrocketed more than 180% in August. In fact, Tilray is the biggest winner among Canadian marijuana stocks so far in 2018. But why would Tilray be so much more successful than others, especially Canopy Growth, which landed a $4 billion investment from major alcoholic-beverage maker Constellation Brands

It's not that Tilray will necessarily profit the most from the Canadian recreational marijuana market. There are other rivals with greater production capacity that should arguably make more money than Tilray will.

My hunch is that many investors think that Tilray is the most likely candidate to follow in Canopy's footsteps by securing a partnership with a big alcoholic-beverage company. Like Canopy, Tilray's stock is listed on a U.S. stock exchange. So is Cronos Group's stock, by the way, and it ranks behind only Tilray and Canopy among major Canadian marijuana growers in year-to-date stock performance. I think its listing on a U.S. stock exchange has been a big plus for Tilray. 

Like Canopy Growth, Tilray has lined up supply agreements for the recreational cannabis market with multiple provinces and territories. Perhaps more importantly, the company has a solid foothold in international medical marijuana markets. Tilray was the first Canadian marijuana grower to export to Europe. The company claims a large cannabis production facility in Portugal.

Now what

There's no question that Tilray's past performance doesn't justify the stock's current valuation. I don't think there's any doubt that the Canadian market won't be large enough to justify Tilray's valuation, either. The real question is whether the global cannabis market will be so great that Tilray's momentum can continue. I suspect that the answer to that question will be "no" over the short term. 

That doesn't necessarily mean that Tilray stock won't continue to go up for a while, though. Investors could keep piling on. A deal with a major company outside the cannabis industry would likely serve as yet another catalyst for Tilray. However, should such a deal fail to materialize, Tilray will probably demonstrate the principle that what goes up can also come down.