Federal-level legalization in the US won’t create the tailwind investors expect for Canadian pot, he says
A short-seller who’s been betting against Tilray admits he was unprepared for its September surge, but says he’s staying bearish on the Canadian cannabis firm.
Andrew Left of US-based Citron research told attendees of the Reuters Global Investment 2019 Outlook Summit that his firm had its “worst day ever in the market” on September 19. On that day, Tilray went as high as US$300 in intraday trading; it ended ahead by 38% after the company’s CEO suggested pharma companies consider partnering with cannabis firms as the substance sees increasing use as a painkiller.
“I was on a boat, in the middle of nowhere, and I couldn’t do anything about it,” Left said.
Investors have been scooping up the stock in hopes that the company would get a piece of the American market, if federal-level legalization comes to pass.
Only 10 states in the US have legalized recreational marijuana, but many consider federal US legalization as inevitable within the next five years. That conviction gained support on Friday following the resignation of US Attorney General Jeff Sessions, who had given prosecutors the go-ahead to enforce federal anti-cannabis laws in states where it has been decriminalized.
That led to a near-31% surge in Tilray’s stock price on Friday; on Monday afternoon, shares of the firm were trading near US$114. But according to Left, the company is overvalued because federal-level legalization will not only open the door to Canadian firms, but also to more formidable domestic cannabis companies.
“When US LPs go public in the next few years it will make these Canadian companies laughable,” he said. “The cannabis trade is a perfect trade because the cannabis trade is a non-branded, no-moat mega-trend.”
Left predicted that US-based producers and brands will thrive most in the domestic market — notably in California, which he said will be at least five times the size of Canada as a cannabis market.
He also noted that Tilray currently has a small number of shares available to investors, but that will change when its lockup expiration ends on January 15. “What happens the day the lockup expires and the float doubles? What happens to the stock then?” he said.
That could very well pose a threat to the company’s shares, but pot-sector bears are struggling for now. According to the Financial Post, data from research firm S3 partners shows that investors have bet US$1.4 billion against US and Canadian cannabis stocks since mid-year, but few successful short sellers.
S3’s data shows Canopy Growth, Aurora Canabis, and Tilray as the most-shorted companies when combining the short interest in dual-listed shares. Short-seller losses for these stocks have reportedly seen losses exceeding US$100 million this year.
