A trader knows when to get out. An investor knows not to get in. A plunger is better off in Las Vegas. Tilray (NASDAQ:TLRY) and the other cannabis stocks were for plungers. Traders who paid close attention, and who got out at the first sign of a reversal, made money. Plungers were taken to the cleaners.
At its opening price of $21.26 per share on Nov. 13, Tilray was down 80% over the last year, and its market capitalization is down to $2.1 billion. The promises of easy profits from mass marijuana growing were a puff of smoke, one that like any other high faded with the dawn.
The latest quarterly report, with a loss of 50 cents per share on revenue of $51.1 million, was the last straw for the stock, and perhaps for the whole group.
It’s time to look for a new fad.
Start Abandoning the Field
InvestorPlace has been following the pot investment fad since it started. The latest verdict of Luke Lango on Tilray stock was devastating. It may take another 20% of losses for the stock to find its footing, he wrote on Nov. 6.
Since then the shares are down almost 10%.
Brad Moon warned investors this was coming a month ago. Tilray fell 13% after rival Hexo (NYSE:HEXO) disappointed. “Investors hate uncertainty,” he wrote. I would add that plungers confuse promise with reality. Traders buy the rumor and sell the news, good or bad.
Tilray was the first cannabis company to list on a U.S. exchange, a year ago in July. It started at $17 and went as high as $214, with a brief intra-day run to $300, before the fall. Traders made out like bandits. They followed charts with each trade, adding with each rise, taking profits with each fall, getting out entirely at the first sign of trouble.
The trouble, as I recently explained about Aphria (NYSE:APHA), is that companies like Tilray, Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) bet on a demand explosion that hasn’t come. When it became clear that Canada was slow-walking legalization, and that U.S. states weren’t rushing to follow Colorado and Washington into recreational pot, they figured things like creams or CBD oil would soak up the crop.
These were patent medicines, in the view of the medical establishment. They were fads. People tried them, and most put them away.
What Happens Now?
There may be a legal pot market. It may be profitable. But it will be much smaller, and grow much more slowly, than the boosters have suggested.
Tilray may not live to see that day. It had just $184 million of cash at the end of June. That’s enough to get through, at most, another year of losses. With the other pot suppliers also sitting on product surpluses, losses look certain.
What happens next will be a slow, grinding consolidation phase, something we’ve seen in the oil patch over the last five years. Those with capital will buy up those without at fire-sale prices, until supply lines up with demand and profits can flow.
The Bottom Line on Tilray Stock
The question is how big those eventual profits may be.
I wouldn’t touch Tilray on a bet right now. I’ve suggested Canopy, because Constellation Brands (NYSE:STZ), which holds a big position, can backstop it. Others have suggested Aphria, due to its lower production costs. David Moadel has suggested that Aurora might reward patient investors.
Investors should have patience with profitable stocks that are out of favor. Don’t have patience with unprofitable ones. You may want to wait to find a buying opportunity in one of these names as the market turns and more of it starts to light up.
What say I? Thanks, but no thanks.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.