What happened

Shares of Tilray, Inc. (NASDAQ:TLRY) were up 7.8% as of 11:08 a.m. EDT on Wednesday, after gaining as much as 12.1% earlier in the morning. This gain came after Tilray stock dropped more than 16% on Tuesday after Pepsi (NASDAQ:PEP) CFO Hugh Johnston stated in the company's Q3 earnings call that the beverage maker had no plans to invest in the cannabis industry for now.

The news really wasn't all that bad for Tilray. There are plenty of other potential partners outside of the cannabis industry for the company. Traders realized that the sell-off related to the Pepsi story might have been overdone and bought Tilray on the pullback. As others jumped on the bandwagon, it created upward pressure for the stock.

Shadow of dollar sign on top of pile of marijuana leaves

Image source: Getty Images.

So what

If it seems like Tilray has a double-digit percent move up or down nearly every day, it's because that's pretty much the case for the marijuana stock. These major swings have little to do with the business prospects for Tilray. Instead, they're the result of a high level of short interest in the stock and a very low stock float of only 10 million shares.

These ingredients create an environment in which any news -- significant or not -- can cause Tilray's share price to soar or sink. Pepsi's decision to steer clear of the cannabis industry at this point isn't unimportant. However, it certainly wasn't something that warranted Tilray losing around $2 billion in market cap. From that perspective, today's rebound makes sense.

On the other hand, Tilray still has a market cap of over $14 billion with business prospects that don't appear to justify such a high valuation. The global cannabis market excluding the U.S. (where Tilray doesn't do business) is projected to be only $8.6 billion by 2022.    

Now what

Tilray stock is probably going to be like a yo-yo for a while. Good news, such as the opening of the Canadian recreational-marijuana market on Oct. 17, could cause shares to jump. Any hint of bad news, though, is likely to cause the stock to drop.

I continue to think there are several reasons why investors should avoid Tilray. The biggest reason is that the stock's valuation isn't sustainable. Tilray has great growth prospects, but they're not as great over the next few years as its share price indicates. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.