Ever since Tilray’s (TLRY.Q) IPO back in July the stock has gone absolutely nuts. On paper Tilray is a solid company compared to many other cannabis companies, but a PB/V North of 200 and market cap of $9.6 billion is crazy. Seattle based cannabis cultivator Tilray Inc. generated $7.8 million USD revenue in Q1 of 2018 before going public and sells its products internationally, often with great price points and margins.
Tilray does have strengths, but we argue the stock has gone nuts mainly because of its share structure, we wrote about this last week.
It comes down to supply and demand.
Tilray’s founder owns a disproportionate amount of stock and voting power, so the amount of shares in circulation for the general public is low, around 15M. With so few shares available to trade, the impact on supply and demand can be significant and share prices can move very quickly in either direction. With so much hype in the cannabis sector, these shares are changing hands constantly as retail investors swarm for the hottest recent IPO.
How Charlotte’s Web Is Similar
On paper, Charlotte’s Web (CWEB.C) has 100M shares outstanding, but nearly 80M are proportionate voting shares that are held by insiders who want to keep control over the company, sounds just like Tilray. 19M shares were sold in the CWEB IPO, insiders sold nearly 2 million shares, leaving 18.5M shares outstanding on the free market. With this low of a float, the minimal amount of shares hold more value than say a company with over 1 billion shares floating around.
Low float stocks can be risky to hold because of high volatility, but cannabis investors have proven time and time again they welcome risk, even searching it out at times. This is especially true if the company behind the stock is involved in a newsworthy event. However, the upside can also be huge if one enters the market at the right time. No one who bought CWEB or TLRY earlier this month are unhappy, yet.
For companies looking for a short term increase in share price out of the gate, this model may become more and more popular as both of these stocks have everyone’s attention at the moment. However, as we all know, what goes up must come down. Both of these stocks are going up at an insane and unsustainable rate, but for the time being, it’s party on!