Tilray shares surged by nearly 10% early Wednesday after the Canadian cannabis cultivator and distributor said it has invested in MedMen to position itself in the US retail market if and when cannabis is legalized on the federal level.
Shares of Tilray gained as much as 9.5% to $14.36 during premarket trade then trimmed the advance to 7.5%. The stock this year has gained about 59% through Tuesday’s session. In May, Tilray completed its merger with Aphria.
Tilray along with other investors in a newly formed limited partnership bought 75% of MedMen’s outstanding senior secured convertible notes originally held by private equity firm Gotham Green Partners, and 65% of outstanding warrants for $165.8 million.
MenMed runs more than 25 stores in six states, including California, the biggest market worldwide. Tilray called MedMen one of the most recognized brands in the $80 billion US cannabis market.
“Backed by accelerating trends towards legalization globally, we are focused on building the world’s leading cannabis-focused consumer branded company with a goal of $4 billion of revenue by the end of our fiscal 2024,” said Irwin Simon, Tilray’s chairman and CEO, in a statement.
The MedMen investment “is a critical step towards delivering on our objective as we work to enable Tilray to lead the US market when legalization allows,” he said.
Tilray said it will issue 9 million shares of its common stock to Gotham Green Partners pending approval by shareholders. A special shareholders meeting will be held on Thursday. If Tilray hasn’t received shareholder approval by Dec. 1, Gotham Green Partners may receive cash rather than Tilray shares.
Retail investors on Wednesday cheered Tilray’s 27% single-day stock pop after the cannabis company recorded its first quarter of earnings after merging with Aphria.
The Toronto, Ontario-based firm jumped to an intraday high of $16.18 Wednesday, the highest point in over two weeks, but still well below its post-IPO record of $300 in 2018.
“$TLRY this is going back to $150. Buy and hold!” one user said in Stocktwits. Another commented that the stock had potential to be “life-changing.” Tilray was trending #1 on Stocktwits Wednesday morning.
The cannabis company posted net income of $33.6 million for the fiscal fourth quarter, compared to a loss of $84.3 million from the prior year. EBITDA nearly quadrupled to hit $12.3 million.
“Still down bad but we’re getting there. To the moon boyz!” one Reddit user commented on a WallStreetBet’s post highlighting the company’s 285% yoy adjusted EBITDA increase.
Tilray’s stock has fallen roughly 5% since it completed its merger with Aphria in May, but the company said it has already benefited from millions of dollars in cost savings from the combination.
“In a very short period of time since our business combination was finalized, we transformed and strengthened Tilray, delivered solid results amid continued COVID-19 lockdowns and restrictions and achieved $35 million in synergies to date – well on our way to delivering $80 million in cost savings over the next 16 months,” said Tilray CEO Irwin D. Simon.
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Workhorse, the Loveland, Ohio-based electric-vehicle maker, has become a retail favorite among other auto manufacturers, like Lordstown Motors and Canoo.
Shares of the plane-maker have rallied more than 12% so far this year.
The meme-stocks rally that’s propelled AMC Entertainment up more than 2,200% so far this year is showing signs of exhaustion, but a recent pickup in buying of cannabis stocks including Tilray suggests that space could be the next center of attention for retail investors, according to a research firm.
“Retail purchases of meme stocks probably peaked on Wednesday,” said Vanda Research on Friday, noting a slowdown in net inflows into shares of AMC, the top recipient of retail investment money in recent weeks. Its rally has carried through to GameStop,BlackBerry and other stocks favored by retail investors active on social media such as Reddit’s Wall Street Bets platform. Vanda monitors retail trading activity in more than 9,000 US stocks and ETFs.
Meanwhile, inflows of $28.6 million into shares of cannabis companies Tilray and Sundial Growers on Thursday were the strongest since earlier rallies in the first quarter of the year. That marked the first clear signs of a rotation out of meme stocks, said Vanda. There was also a significant pick-up in retail flow on Friday for Tilray, Sundial and Cronos, three of the largest cannabis stocks traded in the US.
Meme stocks bounced back into the spotlight for retail investors in late May as bitcoin and other cryptocurrencies were crashing. AMC shares began to surge after major shareholder Dalian Wanda Group sold almost all of its remaining stake in the company. Redditors cheered the newly available shares and flexed their newfound weight in the market.
While meme stocks are still heftier in value than weeks before, the rally was starting to fizzle with AMC shares pulling back. AMC on Wednesday had $66 million in new inflows, less than half of the $136 million mln it had averaged in the previous two sessions, said Vanda. BlackBerry picked up some of the slack by drawing in $110 million for its largest day of retail buying in 2021.
However, “as opposed to BlackBerry, we think the rotation into cannabis stocks has a lot more room to run,” said Vanda, adding that Sundial and Tilray were the fourth and seventh-most active tickers on WallStreetBets forums on Thursday.
“Despite the low chances that the Act is passed in the Senate (due to the filibuster), increasing media coverage is likely to attract the attention of the average retail investor,” said Ben Onatibia, a senior strategist at Vanda.
A handful meme stocks held onto strong Thursday while others, including AMC Entertainment, GameStop, and Bed Bath & Beyond retreated.
BlackBerry led gains among meme stock Thursday before turning downward along with other well-known names. The stock, which fell as much as 8%, was the top conversation piece among retail-trader favorites on Wall Street Bets with AMC and GameStop behind it, according to data from Quiver Quantitative.
AMC, which nearly doubled in price yesterday, fell as much as 40% after the company announced a 12-million share sale. Trading halted three times for the stock amid the sharp decline.
Other meme stocks that have rallied this week fell with it. Bed Bath & Beyond dropped as much as 27% after its 63% one-day rally Wednesday. And the original meme stock, GameStop, retreated as much as 13%.
But not all of the retail-trader favorites declined.
Canadian cannabis companies Tilray and Sundial both rallied despite the meme-stock losses. Tilray, which recently completed its acquisition of Aphria, jumped as high as 16% Thursday, as Sundial rose 33%, putting both stocks on a two-day rally.
The two companies have benefited from positive sentiment from retail traders after Amazon announced it would back a federal bill to legalize marijuana. They were among the “most discussed” stocks on Wall Street Bets, Quiver Quantitative said.
Shares of Tilray jumped 12% to $19 Wednesday and rose 9% in early morning trading Thursday. Last month, Tilray completed its acquisition of Aphria, making the combined business the largest cannabis company in the world by revenue.
As for Sundial, the stock closed 13% higher at $1.13 Wednesday and jumped another 17% Thursday morning.
Earlier this week, Amazon said its public policy team will back the Marijuana Opportunity Reinvestment and Expungement Act of 2021, also called the MORE act, which would end criminal penalties for anyone who sells cannabis in states where its legal, decriminalize the use of cannabis in the US, and allow states to establish commercial marijuana sales.
Retail traders bullish on cannabis stocks have been hyping up the companies on Reddit’s top investing threads, and the sentiment is very positive. According to HypeEquity data, they were two of the top talked-about companies Wednesday among a group of 18 meme stocks, including AMC, Bed Bath & Beyond, and GameStop.
The stocks have seen a “significant pickup” of retail flows in recent days – the most since the meme stock frenzy began earlier this year, Vanda Research said in a recent report, noting the MORE Act as a catalyst for the uptick. The bill, which passed the House of Representatives in December, has “low chances” of being passed in the Senate, Vanda Research analysts said, but “increasing media coverage is likely to attract the attention of the average retail investor.”
In January, an army of retail traders poured into GameStop, starting a new trend of meme stocks. Amid a broad rally in meme stocks, Tilray and Sundial also surged but declined in the following months. Meme stocks have picked up again in recent weeks, though, led by an unprecedented rally in movie theater chain AMC Entertainment.
Tilray shares stepped up by roughly 10% on Friday, bolstered by a double upgrade to “buy” from “underperform” at Jefferies, which said the cannabis company entered into a “perfect” merger with Aphria.
The rating was lifted from underperform in a note published Friday. Jefferies also raised its price target to $23 a share from $4.77, which would represent 63% upside from Thursday’s closing price of $14.15.
The analysts said in an upside scenario, the stock could rise to $31, which would mark an upside of 119% from Thursday’s close.
Tilray said in December it had planned to merge with Aphria in a $4 billion deal that would create the world’s biggest marijuana company.
“For us, when Aphria and Tilray combined, it was the perfect match,” said Jefferies equity analyst Owen Bennett. “In Canada, a leading portfolio of brands, supported an efficient cost structure. In Europe, the market is now picking up, while Tilray’s scale and Aphria’s unique German positioning make it perfectly suited to succeed,” he wrote.
Meanwhile in the US, the combined company’s portfolio of consumer goods and strong balance sheet supports “excellent optionality” around both THC and cannabidiol, or CBD. When full federal legalization arrives in the US, brand awareness of hemp-food/CBD and alcohol offerings will be advantageous, with Jefferies seeing the US market sized at $50 billion in 2025.
Shares of Tilray on early Friday climbed by 9.9% to $15.55 in heavy premarket volume. The stock has pushed higher over the past 12 months by 81%.
Jefferies said it has been mostly cautious on Tilray during its coverage. “Our issue has been that while arguably being the best-placed business to capitalize on future European growth, industry development in that region to date has stalled.” At the same time, Tilray’s Canadian business had “struggled” and it saw Tilray as not taking advantage of its opportunity in the US, “arguably due to its constrained balance sheet.”
But it had been bullish on Aphria, it said, citing the company’s strong approach to branding and efficient cost structure while it had a “very robust” balance sheet.
When “the Tilray and Aphria businesses announced they would be combining in December 2020, we were encouraged. In our view, a combined company presents a compelling proposition,” wrote Bennett.