A year ago today, investors were falling all over themselves to grab a piece of Tilray (NASDAQ:TLRY), the hot Canadian pot grower. A bubble that had been forming in the stock following its July initial public offering at $17 a share and in marijuana stocks, more broadly, in anticipation of Canadian legalization that October, came to a head on Sept. 19, 2018, when Tilray stock jumped from a closing price the day before of $154.98 all the way to $300, nearly doubling, before closing at $214.06. 

Today, the stock trades around $30, down 90% from its peak a year ago. Some investors may rather forget the heady days of the Tilray bubble, especially those on the losing side, but it's worth taking another look at the event as a reminder of how market bubbles happen. Below are three takeaways from the Tilray bubble.

Several jars of marijuana flower with one spilled over.

Image source: Getty Images.

1. A small float only adds fuel to a bubble

Marijuana stocks were generally in a bubble a year ago, but Tilray was especially sensitive because it was the first pot stock to have its IPO on a U.S. exchange, making it easier for Americans to invest in it. Its timing just ahead of Canadian pot legalization on Oct. 17, 2018, also played into the bubble.

However, the real reason the stock saw such wild swings was that there simply weren't enough shares to go around. On Sept. 19, 2018, more than 31 million Tilray shares changed hands, nearly double its float at the time. Tilray had become heavily shorted as the stock rose and a short squeeze helped drive its volatility. However, the limited number of shares made the swings in the stock bigger than they would have been with a greater supply and helped fuel a trader-driven bubble as day traders looked to capitalize on the wild movements in the stock.

2. A sudden surge usually doesn't end well

There were almost no fundamentals driving the surge in Tilray. News on Sept. 13 that the company had secured permits to sell cannabis oil and cannabis flower in Germany may have helped boost the stock, but mostly shares were driven higher by irrational exuberance, the short float, and the greater fool theory. A pattern with bubbles, as we've seen with bitcoin and other assets, is that growth turning parabolic usually heralds the bubble's bursting. The chart below shows how that pattern played out with Tilray.

TLRY Chart

TLRY data by YCharts.

3. Fundamentals still matter

What was also noteworthy about Tilray's sudden explosion is that other Canadian pot producers didn't experience the same burst. That might have made sense if Tilray had been the biggest Canadian pot producer and seemed to have the market cornered once legalization happened, but that wasn't the case. At the time, Tilray was the fifth-largest marijuana producer in Canada, but it still had the highest market cap. Something clearly didn't add up there.

Today, the market has corrected that error. Tilray isn't even in the top five in market cap for cannabis stocks.