Investors sold out of Tilray (NASDAQ:TLRY) after an influential investment bank downgraded its recommendation on the stock.
On Wednesday, Jefferies pushed its recommendation on the Canadian marijuana company's shares down a peg to underperform (i.e., sell) from the previous neutral. It also changed its price target to $5 per share. Jefferies believes Tilray will post a net loss of $1.44 per share for this fiscal year and narrow that shortfall to $0.80 in 2021.
The latter figures, however, would be a significant improvement over the full-year 2019 net loss of $3.20 per share.
Much of the bank's downgrade has to do with its new outlook on the broader Canadian marijuana market. Analysts Owen Bennett and Ryan Tomkins believe total sales in the country will be well lower than generally expected. They're forecasting a total of 2.3 billion Canadian dollars ($1.6 billion) for 2020 against the general analyst estimate of CA$3 billion ($2.1 billion).
Of the common wisdom, the two Jefferies analysts said, "[W]e think consensus is expecting too much from an industry where pricing is seeing real pressure and new product launches are unlikely to contribute meaningfully."
Although cannabis sales in both Canada and the U.S. spiked in the first part of March, Bennett and Tomkins feel that this was a brief phenomenon -- "pantry-loading" in advance of stay-at-home mandates to mitigate the spread of the SARS-CoV-2 coronavirus -- rather than the start of a trend.
Not surprisingly, Tilray's shares fell in the wake of the new Jefferies recommendation. They slipped by 6.2% on Thursday, while the broader stock market indexes recorded healthy gains.