Marijuana stocks plunge as Dow sinks, Tilray slides 14% after earnings disappoint

Cannabis stocks were mostly lower Wednesday, weighed down by pressure in the broader markets after the yield curve inverted and a steep selloff in Tilray shares following earnings.

The Dow Jones Industrial Average was down significantly, after the U.S. 2-year Treasury note yield traded above the 10-year note yield for the first time in more than a decade, bolstering recession fears. An inverted yield curve, in which it’s more expensive to borrow in the short term than the longer term is viewed as a harbinger of recession…

“The equity market is on borrowed time after the yield curve inverts,” strategists at B. of A. Merrill Lynch wrote in a note to clients this week.

The news weighed heavily on cannabis exchange-traded funds. The Horizons Marijuana Life Sciences ETF HMMJ, -6.01%  was down 4.8%, with 48 of its 54 constituent stocks losing ground. The ETFMG Alternative Harvest ETFMJ, -6.00%  was down 4.7%, with all 32 of its constituent stocks falling.

Tilray shares TLRY, -13.82%  fell more than 12% after the company posted wider-than-expected quarterly losses that outweighed better-than-expected revenue, with the stock failing to find support from a mostly bullish analyst response to the numbers. The Canadian company trades on Nasdaq.

Tilray posted a net loss of $35.1 million, or 36 cents a share, versus losses of $12 million, or 17 cents a share, in the year-ago period. Revenue including excise taxes rose to $45.9 million from $9.7 million in the year-ago period.

Removing excise taxes of $3.9 million, Tilray reported revenue of $42 million. Analysts surveyed by FactSet had estimated losses of 28 cents a share on net revenue of $40.3 million.

Piper Jaffray analyst Michael Lavery said the company is well positioned to become a winner in the sector in the long term, highlighting relationships in medical cannabis, to Novartis, in the U.S. to Privateer Holdings and in beverages to AB InBev.

“We expect Tilray to remain in investment mode to drive growth and do not expect positive earnings in near-term,” Lavery wrote in a note to clients. He added that visibility on key strategic growth initiatives justifies the stock’s lofty valuation.

Cowen analyst Vivien Azer said…

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