Tilray Inc's (NASDAQ:TLRY) stock has hit bubble levels and created a “ridiculous valuation discrepancy” for the Canadian marijuana grower, argues short-seller Andrew Left of Citron Research.
In his latest note to investors, Left claims Tilray, which went public in July at US$17 and went past US$100 Wednesday, is part of an unjustified frenzy to buy marijuana stocks, which is “even more ridiculous” than bitcoin mania.
“The bubble has created this ridiculous valuation discrepancy for Tilray,” Left writes. “We know how this will end and will gladly short more if the stock goes higher … our funding is secured because this is what we know."
Despite Left’s note, Tilray shares still finished 9.6% higher to hit US$104.95 on Wednesday.
Read: Tilray is the latest pot stock to come under attack from short-seller Andrew Left's Citron Research
The rush to buy into Canadian companies like Tilray and Cronos Group (NASDAQ:CRON), which are listed in the US, also flies in the face of reason, according to Left, as US-listed companies cannot have any cannabis operations in the US without forfeiting their listings. In contrast, Canadian-listed stocks can have US cannabis operations.
“Today, the California market is over 5 times larger than all of Canada,” writes Left. “Despite obvious logic, we’ve seen US retail investors pile into the US-listed marijuana stocks.”
Tilray must raise more money to fund its aggressive expansion plans and that would come in the form of a secondary offering, the Citron note argues.
Higher competition in the US
The recent valuation surge of US-listed cannabis stocks is also attracting Canadian-listed cannabis companies to the US. And Citron predicts that budding powerhouses such as Aphria Inc, Aurora Cannabis Inc, CannTrust Holdings Inc, OrganiGram Holdings Inc, HEXO Corp and The Green Organic Dutchman Holdings Ltd could all list in the US soon, as none of these companies have US cannabis assets.
The expected migration from across the border of Canadian companies opting for US listings does not play well for Tilray, Citron argues.
“Soon the stock market will have more options as the deepest cannabis IPO pipeline in history will detract capital from Tilray and traders will have new toys to play with,” Citron notes.
Left and his team are similarly pessimistic about the outlook for the wider cannabis sector as marijuana becomes cheaper and regulations put limits on the market.
The price of cannabis stocks have reached levels equivalent to bitcoin mania – but the phenomenon is “even more ridiculous than bitcoin,” the note says.
“Whereas people liked Bitcoin because it was a blue sky, unregulated, difficult to mine, and had no real competition in cryptocurrency, cannabis is highly regulated, can be farmed worldwide for cheap, and has many different players involved,” the note concludes.
-- updated with new share price movement --