This business has been a victim of volatility for a number of months now, but is it still a buy?
Tilray (NASDAQ: TLRY) is a $3.5 billion Canadian pharmaceutical company leading the research, cultivation, processing, and distribution of cannabis. The company aspired to lead, legitimize, and define the future of the industry by building the world’s most trusted cannabis and hemp company.
What is a meme stock?
A meme stock is a stock that has seen an increase in volume due to hype on social media and online forums rather than the company’s performance, leading to the company becoming overvalued. As people look at hype and potential rather than financials, share prices of meme stocks are prone to high volatility. Tilray fits this description!
You can read all about meme stocks in more detail here.
Tilray is in an industry not operating at its full capacity yet, and it likely won’t be for a number of years. This is simply down to regulation — just 16 U.S. states have legalized cannabis for recreational use while it is still illegal across the majority of the world. As we see more states and countries legalizing the use of cannabis, Tilray’s Total Addressable Market (TAM) will widen. Though the long-term success of Tilray will be partially reliant on more lenient regulation, this isn’t worth worrying about as societal attitudes towards the legalization of cannabis are becoming more progressive.
Tilray’s revenue for 2020 stood at $210.5 million, a 26% year-over-year (YoY) increase. Net loss has drastically reduced to $3 million in Q4 2020 versus $219.8 million in Q4 2019.
Tilray and Aphria are due to finalize their merger this week, which will open many doors for possible future growth. The merged company will be well-positioned to pursue global growth opportunities when assets are combined. Aphria operates a medicinal cannabis and distribution center in Germany and Tilray operates a low-cost cannabis production facility in Portugal due to the country’s low costs and tariff-free EU access. Both facilities complement each other and allow for the merged company to increase global output. The company also plans to operate a consumables business with SweetWater Brewing Company, selling alcoholic and cannabis-based beverages, and with Manitoba Harvest, a leader in hemp food manufacturing and CBD products.
Tilray has been subject to volatility since the recent Reddit-fueled rally on weed stocks and other meme stocks. Its stock price was hanging around the $9 mark for a number of months before shooting up to a peak of $67 in February 2021, before more than halving once more. This wasn’t the first time the stock has seen such great volatility — it previously spent around a month trading at the $145 mark in 2018. Though this volatility is off-putting, I wouldn’t be worried about buying at the current price point as I see this as a long-term winner.
Tilray is a business with great foundations in an industry only at its early stages. It’s on the riskier side of investments, but the potential for high returns come with this. Tilray is a great investment for someone with a sturdy long-term portfolio who would like to take on a little bit more risk, though not for the risk-averse investor.
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