Please ensure Javascript is enabled for purposes of website accessibility

Why Tilray Tanked Today

By Keith Speights – Nov 8, 2018 at 2:41PM

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

Yesterday's good news faded fast for the Canadian marijuana stock.

What happened

Tilray, Inc. (NASDAQ: TLRY) stock tanked on Thursday, with shares down 12.7% as of 2:14 p.m. EST. The drop came only one day after the Canadian marijuana stock soared on positive news for the cannabis industry, related to U.S. election results and Jeff Sessions' forced resignation as U.S. Attorney General.

So what

Other major Canadian marijuana stocks also dropped on Thursday after posting nice gains on Wednesday. However, Tilray tends to see more dramatic price swings than its peers, in large part because of its low stock float of just over 10 million shares. Any major buying or selling pressure on the stock causes a greater impact than it would for stocks with larger floats.

Marijuana leaves

Image source: Getty Images.

The fall in Tilray's share price pretty much offsets all of the gains the stock obtained following news of the departure of Jeff Sessions as U.S. Attorney General. Investors caught up in the U.S. cannabis industry's euphoria seem to have realized that the news of Sessions' ouster has little if any direct impact on Tilray.

Even after today's decline, though, Tilray is still up more than 20% this week. U.S. voters handed Democrats a majority in the House of Representatives. This should increase the probability that the House passes legislation that could recognize states' legalization of marijuana at the federal level. If federal laws are ultimately changed, it would open up the possibility for Tilray to compete in the large U.S. marijuana market.

Now what

Expect any hint of good news to light a fire underneath Tilray stock, just as it has over the last few months. But investors can also probably count on bad news to drag the stock down more than it would other marijuana stocks.

This is likely to continue to be the story for Tilray until more shares are available for trading. That won't happen until Jan. 15, 2019, at the earliest. Tilray's initial public offering (IPO) lockup period expires on that date. Company insiders will then be allowed to sell some of their shares.

Short-term fluctuations normally shouldn't be too concerning for long-term investors. However, Tilray's market cap is so high that even strong growth prospects might not be enough to justify the current share price. Over the long run, Tilray could be a big winner, but investors would probably be better off staying away from this volatile marijuana stock for now.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

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

Stock Advisor Returns
339%
 
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.