Shares of Tilray, Inc. (NASDAQ: TLRY) were up 36.5% as of 10:29 a.m. EDT on Wednesday and rose more than 40% earlier in the morning. The stock received a big boost from Tilray CEO Brendan Kennedy's interview Tuesday evening with CNBC's Mad Money host Jim Cramer.
Continue Reading Below
Several of Kennedy's statements generated excitement among some investors. For example, he said that pharmaceutical companies and alcoholic beverage companies need to "hedge" by partnering with cannabis companies because cannabis is a substitute for some of the big companies' drugs and beverages. Kennedy also stated that Tilray's "intent is to build a company that dominates part of this $150 billion industry. I think you'll see multiple hundred-billion-dollar companies."
Gaining exposure to a large television audience full of investors is usually a good thing for a company. That's especially true when the company's CEO paints a very attractive picture for investors, which is exactly what Kennedy did. A modest bump for Tilray would have been expected and probably warranted. But a jump of more than 35%? That's a different story altogether.
Kennedy's statement that pharmaceutical companies should hedge against potential losses of market share for their products by partnering with marijuana growers makes sense to some extent. Obviously, not every pharma company markets products for indications that cannabis could potentially also address, but some of them do.
His comment was even more applicable for alcoholic beverage makers. These companies should be worried that legalized recreational marijuana could hurt sales of their alcoholic beverages. And they are worried, which is why we've seen Constellation Brands invest $4 billion in Canopy Growth and Molson Coors Brewing pick HEXO as its cannabis partner.
However, Brendan Kennedy said that Tilray wouldn't want to partner with Anheuser-Busch InBev (ABI) because the company wants "to build ABI." He foresees a future with several cannabis companies, presumably including Tilray, with market caps exceeding $100 billion.
That optimism sounds great. But the global cannabis market isn't anywhere close to the $150 billion industry that Kennedy (and other Canadian marijuana company CEOs) predict. Arcview Market Research and BDS Analytics estimate that the global legal cannabis market will be just shy of $13 billion this year. By 2022, the market is projected to increase to $32 billion.
It's important to note that the U.S. will generate more than 85% of the total legal cannabis sales this year and roughly three-quarters of total cannabis revenue in the 2022 projection. While Tilray stock vaulted higher on Tuesday after winning approval to supply medical cannabis for a U.S. clinical study, the company can't do business in the U.S. until federal marijuana laws change.
Tilray's share price could continue to go higher. There's a euphoria right now among marijuana stock investors, especially over Tilray, that might not evaporate for a while. More good news could be on the way. The Canadian recreational marijuana market opens in October. Tilray could score a partnership with a major beverage company. (I suspect the company would be ecstatic to make a deal with ABI, regardless of what Brendan Kennedy said on CNBC.)
But I think that the reality for Tilray is that the stock has gotten ahead of the prospects for the business. Those prospects remain very good, in my opinion. However, the prospects aren't good enough to justify Tilray's gravity-defying stock performance in recent weeks.
Maybe one day there will be a $150 billion global cannabis industry, but that day is a long way off. If a market cap of more than $20 billion for Tilray seems too good to be true, it's probably because it is too good to be true.
10 stocks we like better than Tilray, Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Tilray, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 6, 2018