Why Tilray stock is susceptible to wild price swings

This post was originally published on this site

Cannabis producer Tilray Inc. experienced one of the wildest trading sessions in recent memory Wednesday, with trading halted five times in a roller-coaster end to the session, but the end result — a 38% gain— has become somewhat normal for a stock that is more susceptible than others to wild price swings.

Tilray TLRY, +38.12%  stock’s outsize volatility and meteoric gains from its July initial public offering of $17 a share — it closed at $214.06 Wednesday, after trading as high as $300 — is the result of several factors converging: A relatively small number of outstanding shares, significant short interest and not many investors than can loan the stock to short sellers. The result is a stock that can swing wildly based on relatively minor announcements of its own, or even cannabis competitors’ news.

Tilray has only 17.8 million shares available for trading, a very small number — for comparison, fellow cannabis producer Cronos Group Inc. CRON, +9.78% CRON, +8.77%  has a float of almost 196 million shares, while Aurora Cannabis Inc. ACBFF, -0.82% ACB, -1.36%  has nearly 912 million shares available to trade. With so few shares available, it is easier for a small number of investors interested in acquiring or disposing of a small number of shares to push the price higher or lower.

Meanwhile, there is an enormous amount of trading that helps push demand for the limited amount of Tilray shares. On Wednesday, 31.5 million shares changed hands, according to FactSet, while the average volume for the past five days is 17.8 million shares — the same as the number of shares in public hands.

Tilray’s small float won’t last forever, however. The company’s lockup period will expire 180 days after its July 19 IPO, which will allow insiders like executives and employees, as well as other institutional shareholders and investors, to openly trade the stock they own. Even after the lockup expires, Privateer Holdings — the venture-capital firm that spawned Tilray — will still own the vast majority of stock, with 75 million shares.

Other institutional owners who hold Tilray are not as publicly known as Privateer, though. The company conducted a funding round several months prior to its IPO but has not disclosed the investors.

Part of the reason for the volatile stock price could also be a wide spread between the bid and offer. On Wednesday the difference between what investors were selling the stock for and the bid was as much as $2; the bid-offer spread on Apple Inc. AAPL, +0.06% for example, can usually be measured in cents.

Don’t miss: Weed beer is near, and it’s gonna get weird

As a result of these factors, Tilray’s announcements and other developments in the cannabis industry can have an outsize impact on the stock price — after Constellation Brands Inc.’s STZ, +0.77%   $4 billion investment in fellow cannabis producer Canopy Growth Corp. CGC, -4.89% WEED, -5.75%  , Tilray’s shares rose 16% on the day.

Constellation’s massive bet on the cannabis industry came amid a flurry of activity as Canada gears up for the legalization of recreational marijuana on Oct. 17. Other beverage giants such as Diageo PLC DEO, -0.70%   and Coca-Cola Co. KO, +0.07%   have been reportedly eyeing a deal with cannabis firms, which has fueled gains. And Canadian provinces, which are charged with the nuts and bolts of selling marijuana, have been releasing the quantities and suppliers of cannabis they intend to buy leading up to October.

Stocks have even surged after such data releases from relatively small provinces such as Nova Scotia — population 950,000 — though they do not typically contain information about quantities from specific suppliers.

See also: As Tilray soars, short sellers keep betting against pot stocks

Despite the small float and high short interest, Tilray stock is not in a short squeeze, said S3 Partners managing director of predictive analytics Ihor Dusaniwsky. A short squeeze is a market phenomenon when a heavily shorted stock rises quickly, causing shorts to exit their positions, usually at a loss. Dusaniwsky said Wednesday on Twitter that there were 3.5 million shares shorted as of the end of August and that number hasn’t changed significantly since.

Dusaniwsky said that because of the lockup and the high short interest, there is literally no more stock that investors can borrow to short the name. What appears to be driving the price, Dusaniwsky told MarketWatch on Tuesday, is buyers bidding up Tilray shares.

Tilray shares finished Wednesday’s wacky session up 38% to $214.06 but declined in after-hours trading. The S&P 500 index SPX, +0.13%  closed up 0.1% Wednesday.

Be Sociable, Share!

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.