After tumbling from an intraday peak of $300 last week to less than $100 yesterday, pot stock Tilray (NASDAQ:TLRY) was gaining back some ground today following word that it's distributing medical marijuana to more patients in Australia. Can Australia's market opportunity move the needle for Tilray investors?
Only about 17 million of its shares were made available for trading, though, so its relative illiquidity has made its share price prone to wild swings as investors debate how to value the potential profit in legalizing marijuana.
The moves in Tilray's share price have been especially eye-widening in the past week.
The launch of Canada's recreational marijuana market next month, rumors that a major beverage company has been kicking the tires at Tilray's peers, and news that the U.S. Drug Enforcement Agency has cleared it to import marijuana for an essential-tremors clinical trial sent short-sellers scrambling to cover their positions. The short squeeze and ensuing downdraft because of profit-taking caused shares to trade as high as $300 last week and as low as $97 on Monday.
Today, shares clawed back as much as 20% in early morning trading after Tilray announced that its subsidiary, Tilray Australia New Zealand Pty. Ltd., is providing cannabidiol (CBD 100) to three hospitals in the Australian state of Victoria for use by children with intractable epilepsy.
The distribution agreement follows the company's first successful export of cannabis products for use in 29 children in Victoria in March 2017, as well as a report by the Victoria government earlier this year that the program was reducing seizures and improving quality of life in those children.
Tilray didn't provide an update on how many patients are being helped by this new distribution arrangement. But the Victoria government said earlier this year that the import program would increase to treat a total of 60 patients, and that another 30 patients would be provided with locally produced CBD once it's available.
Is Tilray a buy on this news?
Currently, most of Tilray's $9.7 million in quarterly sales is derived by selling dried flower and finished products, including cannabis oils, to medical marijuana users in Canada, and this latest distribution agreement is unlikely to change that anytime soon. Despite distributing to Australia in the past, Tilray's revenue from countries other than Canada totaled just $345,000 in the second quarter of 2018.
Also, Victoria has a goal to become a major source of medical cannabis for Australia, suggesting its commitment to local sources could give others the inside track to sales in Victoria long term. For example, Canopy Growth signed a research and production memorandum of understanding with Victoria in January to "further develop research and technical capabilities in the production of medical cannabis in Australia." The agreement includes focusing on "medical applications for cannabis genetics, strain development, cultivation, and processing" to improve patient access.
Furthermore, the Food and Drug Administration (FDA) approval this past summer of Epidiolex, a purified CBD created by GW Pharmaceuticals (NASDAQ:GWPH), could eventually lead to an approval in Australia. And if it does, then doctors may prefer it over Tilray's CBD 100, because Epidiolex's efficacy and safety have been scientifically proven in hundreds of patients and vetted by the FDA.
Don't get me wrong: This distribution deal reflects a real and growing appetite for medical marijuana worldwide that Tilray can benefit from long term. I simply don't expect that this latest distribution agreement will move the needle enough to justify the big rally in Tilray's shares today.
Ultimately, any benefit from sales to Victoria will be dwarfed by revenue generated elsewhere, especially in Canada. For perspective, cannabis market researcher Arcview pegs the legal marijuana market in Australia at only $52 million this year, while Deloitte expects the medical marijuana market in Canada to eclipse $770 million next year.