Investors have been betting on the cannabis industry on optimism over the potential for broad legalization of marijuana in the United States since Joe Biden’s Presidential win last year. This is evidenced by the AdvisorShares Pure Cannabis ETF’s (YOLO) 68.6% returns over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 20% gains…
However, many analysts don’t expect broad cannabis legalization in the U.S. to happen anytime soon. According to White House Press Secretary Jen Psaki, “The President supports leaving decisions regarding legalization for recreational use up to the states, rescheduling cannabis as a Schedule II drug so researchers can study its positive and negative impacts and, at the federal level, he supports decriminalizing marijuana use and automatically expunging any prior criminal records.”
Given this backdrop, fundamentally weak cannabis stocks that are currently trading at high valuations based solely on optimism over the industry’s growth prospects based on a federal legalization in the near term could retreat. Two such stocks in this space, Tilray, Inc. (TLRY – Get Rating) and Sundial Growers Inc. (SNDL – Get Rating), are also short squeeze targets of Reddit forums’ WallStreetBets. So, investors should avoid these stocks now.
Tilray, Inc. (TLRY – Get Rating)
TLRY researches, cultivates, processes, and distributes medical cannabis worldwide. The company operates through two segments—Cannabis and Hemp. The Cannabis segment sales consist of adult-use, medical and bulk sales of cannabis under regulated licenses and sold to retail, wholesale, pharmacy, government, and direct to patient.
In December, TLRY and Aphria, Inc. (APHA), a leading global cannabis company, agreed to merge to become the world’s largest global cannabis company with$685 million in pro forma revenue. APHA’s shareholders have voted in favor of the merger, while TLRY is scheduled to hold its shareholder vote on April 30. On April 21, in a CNBC interview, TLRY’s CEO discussed the companies’ plans to become the leading giants in the cannabis industry with their impressive research and marketing strategies, after cannabis is the U.S. and Europe.
On March 10, New Zealand’s Ministry of Health and its Medicinal Cannabis Agency granted TLRY the first approval to commercialize its medical cannabis products across the country. This makes TLRY the first licensed producer to legally export medical cannabis from North America to Australia and New Zealand.
TLRY’s operating loss came in at $21.28 million for the fourth quarter, ended December 31, 2020, compared to a $32.77 million loss in the third quarter of 2020. The company’s net loss increased 27.2% sequentially to $2.95 million. Its loss per share was $0.02 for both the third and fourth quarters of 2020. TLRY’s total liabilities and stockholders’ equity increased 5.5% year-over-year to $945.95 million.
Analysts expect the company’s EPS to be…
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