Please ensure Javascript is enabled for purposes of website accessibility

Why Tilray Stock Plunged 34% in October

By Joe Tenebruso – Nov 6, 2018 at 6:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The popular marijuana stock flew too close to the sun.

What happened

Shares of Tilray (TLRY) lost more than a third of their value last month, according to data provided by S&P Global Market Intelligence. The marijuana company plummeted back down to earth after enjoying torrid gains earlier in the year.

So what

From its closing price on the day of IPO on July 19, Tilray's stock soared an incredible 541% by the end of September. Investors bid up Tilray's shares in a frenzy during the run-up to the legalization of recreational marijuana use in Canada. Bullish comments by Tilray CEO Brendan Kennedy during an interview on CNBC further stoked investor optimism, fueling additional demand for its stock.

Yet Tilray appears to have gone too far, too fast. At one point, its market cap surpassed that of industry leader Canopy Growth (CGC -2.23%) -- a company with nearly three times the production capacity as Tilray and billions more in cash reserves.

In fact, for a brief moment, Tilray's stock hit a high of $300 per share, meaning the company was valued at nearly $23 billion -- or more than 165 times its projected sales in 2019

With Tilray's stock having since lost nearly two-thirds of its value since that time, it appears investors finally got a reality check.

Flames and smoke

Tilray's gains went up in flames in October. Image source: Getty Images.

Now what

I should note that the prospects for the overall marijuana industry remain bright. Worldwide spending on legal cannabis is projected to reach $32 billion by 2022, according to Arcview Market Research and BDS Analytics. 

Tilray should certainly benefit from this trend. It has a deal with Novartis' Sandoz subsidiary to produce medical marijuana products. It's also the first company to gain regulatory approval to export both cannabis flower and cannabis oil products to Germany. And Tilray recently received authorization to supply medical cannabis for a clinical trial in the U.S. All of this suggests that Tilray is moving in the right direction in terms of appeasing regulators and successfully entering new markets.

It's also possible that Tilray could be acquired. I wouldn't be surprised if a company like Anheuser Busch Inbev NV made a move into the marijuana market in order to help offset tepid beer sales. A tobacco titan like Altria could also decide to make a bid for a marijuana producer for similar reasons, with cigarette sales likely to remain in secular decline.

Still, Tilray's stock remains richly priced -- and prone to severe volatility. As such, investors who choose to buy or hold shares in Tilray today should brace themselves for a bumpy ride.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tilray, Inc. Stock Quote
Tilray, Inc.
TLRY
Canopy Growth Corp. Stock Quote
Canopy Growth Corp.
CGC
$3.07 (-2.23%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.