What happened
Shares of Tilray (TLRY) had skyrocketed 21.3% as of 10:25 a.m. EST on Friday. The big jump came after Privateer Holdings, a top shareholder of the Canadian marijuana producer, announced that it wouldn't sell any of its shares when Tilray's initial public offering (IPO) lockup period expires on Jan. 15, 2019.
So what
IPO lockup periods prevent insiders from selling any of their shares for a specified time. Insiders often take profits at the end of this period, especially if the stock has gone up significantly. A flood of shares being sold at one time, though, can create downward pressure on share prices.
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Tilray's share price has soared more than 340% since its IPO. It won't be surprising if some key insiders opt to sell some of their shares after Jan. 15 to lock in really nice gains. Prior to the announcement, many believed there could be a sell-off in Tilray when the IPO lockup period expired.
Privateer Holdings' decision, however, changes the expectations for Tilray over the short term. The company owns roughly 76% of Tilray's outstanding shares. While there could still be some insider selling a few days from now, it won't be nearly as significant as it could have been.
This doesn't mean that Privateer Holdings won't sell some of its stake in the future, though. Privateer stated only that it doesn't plan to sell any Tilray shares in the first half of 2019. Michael Blue, managing partner of Privateer Holdings, said, "When we decide to distribute shares, we will do so in an orderly and deliberate manner."
Now what
Today's news was a huge relief for Tilray shareholders. However, Tilray stock is likely to continue to experience high volatility.
One result of Privateer Holdings' decision to keep its shares at least through the first half of the year is that Tilray's stock float will still be very low. Price swings tend to be greater when there aren't as many shares available for trading.
None of this affects the long-term prospects for Tilray, though. The company's fortunes hinge on strong growth in the global marijuana market. And that growth is already picking up momentum.
