Tilray Inc. (NASDAQ:TLRY) could leave investors high and dry next year. The company’s 180-day lock-up period on roughly $80 million in shares will expire January 15, making dilution a very real possibility for many North American cannabis investors.
Tilray’s initial public offering only included nine million shares. 75 million were retained by Privateer Holdings Inc. while another group of investors, who at the time of this article remain undisclosed, hold eight million more. As soon as these investors have a chance to play the market in January, the price of Tilray’s stock is expected to fluctuate, and not in an optimistic sense.
Their market performance, like many Canadian marijuana stocks, experienced turbulence when cannabis went legal in Canada on October 17. And since then, there has been little positive growth to report. Tilray closed in the negatives in the middle of this week and is still operating with an ROI of negative 16.2 percent. It is still too early to call Tilray a complete net loss, but this upcoming expiration is not exactly good news for cannabis investors.
Should investors stay or should they go?
Whether or not to sell Tilray shares depends on how long investors want to play the market. As it stands, the cannabis sector still possesses substantial growth potential in North America, especially when compared to the likes of the alcohol and tobacco industries. However, many pitfalls remain for marijuana stocks. Tilray’s upcoming expiration is one. Marijuana’s federal standing in the United States is another.
While risks like these could pay off nicely in the future, it comes down to how long cannabis investors are willing to wait — and how much they are willing to lose — for their returns.
In the case of Tilray, on top of the lock-up and its poor stock performance, the company also boasts an unrealistic market cap of $14 billion. Tilray lags far behind the production capacity of Canopy Growth Corp. (TSX:WEED) (NYSE:CGC) and Aphria Inc. (TSX:APH) yet still has a higher valuation than either company. Tilray is only on track to operate 850,000 of their 3.6 million square feet of production capacity by the end of the year.
Until they are up and running at their full capacity, investors will have to wait at least two or three years before seeing any real returns.
There are still some positives for this pot stock
The potential for real returns is there. Both Tilray’s national and international footprints hold promise. They have supply deals with seven Canadian provinces and were recently approved by the U.S. Drug Enforcement Agency to participate in a cannabis clinical study in California.
Abroad, Tilray acquired Alef Biotechnology, a licensed marijuana producer in Chile, earlier this month. The acquisition gives Tilray permission to import, distribute, and produce medical cannabis in Chile and establish a Latin American shipping hub for Tilray’s brand of medical marijuana.
It will cost investors up front to get these deals up and running, but once they are established, Tilray could come out as one of the top pot stocks in the industry.
Tilray’s future performance, like that of all stocks, is all speculation. Much of their current worth depends on what shareholders do on January 15. Tilray’s value could plummet, costing investors, or the stock could remain stagnant until they are finally working at their full capacity. That will take years, and it is far too early to tell which North American and international markets will reap the biggest returns.
The time is nigh to sell, but if cannabis investors are willing to wait, Tilray’s bumpy ride through the market could be worth their time.