What happened

Shares of Tilray, Inc. (NASDAQ:TLRY) were up 13.9% as of 11:05 a.m. EDT on Monday. The only news related to the Canadian marijuana grower was that it entered into a supply agreement with Supreme Cannabis for dried cannabis. But that deal was much more important news for Supreme Cannabis, which saw an even larger double-digit percentage gain, than it was for Tilray. So why did Tilray's share price jump?

Perhaps the most likely answer is that institutional investors are continuing to buy shares of Tilray in anticipation of the opening of the Canadian recreational marijuana market next month. It's also possible that investors think that Tilray could be a top partnership candidate for a large company outside of the cannabis industry.

Shadow of dollar sign on top of pile of marijuana leaves

Image source: Getty Images.

So what

There are three things that investors should note with Tilray's surge today.

First, it comes after Northland Capital Markets downgraded Tilray stock last Thursday from outperform to market perform. Today's solid gain shows that enthusiasm was only temporarily impacted by the downgrade. Tilray hit record high levels last week and could break its all-time high share price this week.

Second, Tilray is outperforming its peers by a wide margin. All of the major Canadian marijuana growers have enjoyed strong momentum since Canopy Growth announced a $4 billion investment from large alcoholic beverage maker Constellation Brands. But Tilray's share price has skyrocketed more than 200% since then -- a move at least twice as great as the surge in any of the company's top rivals' prices.

Third, Tilray's valuation now isn't just at a nosebleed level -- ears and eyes might bleed, too. Another week or two like the company's previous two weeks could push Tilray's market cap higher than the combined market caps of the No. 3 and No. 4 Canadian marijuana growers, Aurora Cannabis and Aphria

Now what

Can Tilray's share price continue to move higher? Yes. It's clear that the investment community views Tilray in a different light than it does most other Canadian marijuana stocks. I suspect that Tilray's listing on a U.S. stock exchange is the key factor at work.

News of a major partnership along the lines of the Canopy-Constellation deal could be the next big catalyst for Tilray. Guinness beer maker Diageo is reportedly looking for a cannabis partner. I think that Tilray would logically be one of the top candidates for the alcoholic-beverage company. Don't rule out the possibility of a big tobacco company entering the fray, either.

But can Tilray's current rate of stock gains continue? Not for much longer. Valuation is already a serious concern. I think it's a question of when, not if, Tilray's share price will experience a significant pullback. Sometimes stock prices become somewhat disconnected from the underlying business prospects. Tilray has great prospects, but I don't think they're as great as the stock's recent gains indicate.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Diageo. The Motley Fool has a disclosure policy.