Why Tilray Is Sinking Today

Shares of Tilray (NASDAQ:TLRY) sank 10.8% as of 10:54 a.m. EST on Tuesday after falling as much as 14% earlier in the morning. It was a day of reckoning of sorts for the Canadian marijuana producer as its initial public offering (IPO) lockup period expired.

IPO lockup periods prevent insiders from selling their shares for a specified period of time. When the periods expire, insiders often sell some or all of their shares to lock in profits. The flood of stocks on the market for sale tends to create downward pressure on share prices. That’s what appears to have happened for Tilray today, with its stock down on trading volume more than 2.6 times its average volume.

There are two things that investors should understand about Tilray stock’s drop today. First, it could have been much worse. Second, it’s inconsequential in the big scheme of things…

Privateer Holdings owns around 76% of Tilray’s outstanding shares. Last week, the private equity firm announced that it wouldn’t sell any of its shares in the first half of 2019. Privateer Holdings’ decision was tremendously important for Tilray because it prevented a much larger sell-off.

Tilray’s share price still fell, though, because there were other insiders who didn’t commit to holding on to their shares. Roughly 11% of Tilray’s outstanding shares were held by insiders other than Privateer Holdings prior to today. It appears that some of those shares went up for sale after the IPO lockup period expired.

But all of this really doesn’t mean much for Tilray over the long run. We’re seeing the natural course of events take place as more Tilray shares enter the market. However, Tilray’s business prospects aren’t changed in the slightest by the number of its shares that change hands.

Actually, Tilray announced a deal Tuesday morning that improves its long-term prospects. The company signed a long-term revenue-sharing agreement with Authentic Brands Group (ABG) to market and distribute consumer cannabis products. ABG’s brands include Nine West, Prince, and Spyder. Tilray will be ABG’s preferred supplier of cannabinoids and will have rights to up to…

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