It’s hard to say that Tilray (NASDAQ:TLRY) has had a tough year. Right now, TLRY stock is up 32% year-to-date (YTD) and 53% for the past 12 months. However, in this market, long-term memory isn’t cool. The shares are down almost 18% for the past three months. That’s what gets eyeballs when it comes to meme stock forums — and increasingly, every other financial media outlet.
As with all of these other next-gen companies — from neobanks to electric vehicle (EV) makers to lithium miners and marijuana companies — the hype seems to drive these firms to outrageous levels with no underlying reality other than the sentiment that “It’s gonna be really, really big.”
A perfect example? Just after new-kid-on-the-block Lucid Group (NASDAQ:LCID) won Car of the Year honors, LCID stock soared. Now, its market capitalization is about $10 billion higher than Ford (NYSE:F). Yet, Lucid has delivered a relative handful of cars. Meanwhile, Ford produced 1.7 million vehicles in 2020 alone.
As another name sporting the hype, here’s what you should consider about Tilray moving forward.
TLRY Stock: Easy Money = Reckless Investing
I’m all for taking a flyer now and again. But the valuations on most of these new companies are so high it makes no sense. Shares are selling at a premium in the hopes that the current economic conditions stay in place. Meanwhile, the promising firms are still working out how to actually produce earnings to underpin their prices.
TLRY stock is just another example of this magical thinking.
Yes, the company has made some solid moves in Canada. Three years ago, major global brewer Anheuser-Busch InBev (NYSE:BUD) ponied up $100 million to work out a CBD- (and eventually THC-) infused beverage line with the company in Canada. Tilray also went on to merge with Aphria last year, giving the company access to the U.S. market through craft brewer SweetWater Brewing Company.
Is all that worth a $5 billion market cap with negative earnings? Apparently so.
The easy-money world we have been living in since 2008 has meant investors –- young and old –- are looking high and low for plays that will grow faster than their money markets, CDs and savings accounts. This money has helped fuel these gold-rush rallies, building the current, manic FOMO (fear of missing out) culture.
And every time when people start to come to their senses? Beginning to talk in real fundamentals and logically work through the challenges of, say, Canadian cannabis companies? Those firms just cut a new big-name deal, or merge with another company in an all-stock agreement.
Is There a There, There?
No doubt, there’s opportunity in the cannabis sector in North America. Moreover, Canada is years ahead of the U.S. — making strategic deals with big firms to help create an opening for a footprint in the U.S. market. When the U.S. does open up to cannabis, that deal-making will have been crucial for cannabis companies to thrive.
In addition to this, new legislation proposed by South Carolina Representative Nancy Mace in Congress has recently gotten investors excited. Instead of legalizing cannabis and taxing it significantly (Democrats have suggested up to 25.5%), the new proposal would tax it at 3.75%. The reasoning? A high tax would still incentivize black-market sales at lower prices.
This progress is encouraging, but it also highlights the devils in the details that remain in order to legalize cannabis.
But how long do investors have to wait for all of this to pay off — especially at the current valuation? Plus, with the U.S. Federal Reserve slowing down the easy money, will investors even still be excited about these wing-and-a-prayer stocks? Or will big firms continue to buy into them at current levels?
When it comes down to it, there’s simply a lot of risk to ignore.
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On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.