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How the Canadian cannabis company Tilray became worth more than American Airlines

The pot company’s stock has only been public since July. And it’s making many people — including Peter Thiel — very rich.

A worker trims cannabis at the growing facility of the Tikun Olam company on March 7, 2011 near the northern city of Safed, Israel. 
A worker trims cannabis at an Israeli growing facility.
Uriel Sinai/Getty Images
Emily Stewart covered business and economics for Vox and wrote the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

The Canadian cannabis producer Tilray became the first marijuana company to go public on the Nasdaq in July. Its initial share price: $17. As of a month ago, its price had about doubled, to around $35. But in recent days, Tilray’s stock has skyrocketed well past $200. The company is now worth more than $20 billion — more than American Airlines, Expedia, and pharmaceutical company Mylan.

So what gives?

Based in the Vancouver Island town of Nanaimo in Canada, Tilray, according to its website, is dedicated to “cultivating and delivering the benefits of medical cannabis safely and reliably.” Its revenues were just $20 million last year, but because Canada is about to legalize marijuana in October, its business prospects recently have become much more attractive.

The big reason its stock price is up so much right now isn’t Canada but, instead, the United States: The US Drug Enforcement Administration just signed off on Tilray’s plan to import marijuana from Canada to the US for medical research.

The company will work with the University of California San Diego’s cannabis research center to study whether the drug can be effective in treating essential tremor, a neurological movement disorder.

In turn, Wall Street appears to have caught Tilray fever. The DEA announcement sent Tilray’s US-listed shares up nearly 30 percent on Tuesday, and Tilray surpassed Canopy Growth as the most valuable publicly traded pot company.

“Tilray is the closest thing to being able to be [invested] in the cannabis industry in the most liquid market in the world, and that’s why we see the valuation where it is right now,” said Leslie Bocskor, president of Electrum Partners, an advisory services firm specializing in cannabis.

That doesn’t mean that investors would be wise to jump on the Tilray train now.

The pop in Tilray’s share price more than 1,000 percent since its initial public offering in July might not be sustainable. Pot stocks are notoriously volatile, and there’s evidence a lot of investors are actually shorting Tilray’s stock, or betting against it.

Right now, there is a limited amount of publicly traded Tilray shares available to investors, as most of the company’s shares are still privately held by Privateer Holdings, a private equity firm backed by investor Peter Thiel. In January 2019, private shareholders will be able to sell their shares to the public, meaning that a lot more shares could hit the market and push Tilray’s stock price lower.

“It’s created this supply and demand issue where it’s driving the stock up, and it’s just not letting up. All of that will change once new shares come into the market,” Jason Spatafora, who runs and tweets under the name @WolfOfWeedST, said. “This is complete greed and irrational exuberance, and a lot of people are going to end up getting hurt.”

Tilray could be the next Amazon. Or the next

The cannabis industry in the US and Canada has grown significantly in recent years. Spending on legal cannabis worldwide is expected to reach $57 billion by 2027, with the largest group of buyers being in North America.

But investing in cannabis remains precarious. Marijuana in the United States is still classified as a schedule 1 drug federally, on the same level as heroin and LSD.

Some states have legalized it for both recreational and medical use, but there are still a lot of details to hammer out, and the fact that the federal government could crack down on a cannabis company at any time makes it a risky investment. (Analysts often draw a line between companies that do and don’t touch the product — those that don’t touch marijuana itself but rather, for example, provide packaging for it, are generally safer investments.)

Most cannabis stocks trade on over-the-counter markets, not the big stock exchanges like the Nasdaq and New York Stock Exchange. There are some exceptions — Canopy Growth is listed on the NYSE, and Innovative Industrial Properties went public on the NYSE, but it largely deals in real estate. And, of course, there’s Tilray.

Investment bank Cowen took Tilray public in July at $17 per share, and since then, its share price has skyrocketed, especially in recent days. It is on more solid ground than a number of publicly traded cannabis companies — according to Bloomberg, it has agreements to sell marijuana in Canadian pharmacies and is focused on medicinal marijuana in 12 countries. But it is also subject to some of the same issues as other publicly traded pot companies, including volatility: During morning trading on Wednesday, Tilray’s stock price swung from about $230 to $180 and back again within the span of about an hour.

Bocskor said that from a “fundamental perspective” — as in, the financials and basic business of the company — there is “no justification” for Tilray’s current valuation. But, he said, the stock’s naysayers and short-sellers could have it wrong, and this may be the Amazon of the cannabis industry. “From a valuation perspective, from the investment perspective, from trying to create context. … Amazon is a very valid reference point,” he said. “Only time will tell.”

It could also be the next, which flamed out during the dotcom bubble.

The current Tilray rage has also drawn comparisons to Bitcoin’s swings late last year, when the cryptocurrency’s price exploded to nearly $20,000. It’s now trading in the $6,000 range. As Bloomberg’s Lily Katz and Brandon Kochkodin report, multiple crypto- and Bitcoin-related stocks took off last year, similar to what’s happening with Tilray, only to crash and burn later.

“It’s like the supply and demand that drove Bitcoin up,” Spatafora told me. “That’s what this is, it’s just limited supply and over-demand.”

Bocskor, who sits on the boards of and has invested in multiple cannabis industry companies, is bullish on the cannabis industry. Still, he said, everyday investors should probably stay away for now.

“Small investors that just have a couple of thousand dollars shouldn’t be invested in cannabis yet,” he said. “It’s just not a good choice.”

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