Is it a good time to buy Tilray Inc.? – The fool

The trend is up for marijuana stocks before the opening of the Canadian market for recreational cannabis in October. Tilray Inc. (NASDAQ: TLRY) is among the biggest recent winners in the industry. Tilray's shares have nearly doubled this month due to growing optimism that it will be the next marijuana stock to enter into an agreement with a large consumer products company. Can this stock continue to climb?

Tilray's business

Tilray has four facilities with a combined 912,000 square foot space that can be used to grow cannabis, extract chemical cannabinoids from marijuana, and package cannabinoids for sale as drugs and consumer products.

Unlike some marijuana growers, Tilray is less interested in taking advantage of the pot itself and much more interested in making its name known by selling nutraceuticals (foods with medical benefits) to help patients with unmet medical needs.

He tries to prove the value of marijuana as a medicine (and stimulate demand for his marijuana products, including edible products). Tilray studies the efficacy of cannabinoids in patients with severe epilepsy in Canada and evaluates cannabinoids as a treatment for nausea and vomiting induced by chemotherapy in Australia.

It also supplies cannabis to drug distributors in 12 countries and works with Novartis& # 39; (NYSE: NVS) the generic group, Sandoz Canada, to create marijuana-based medicinal products that can be sold in pharmacies and used in hospitals.

Why Tilray's actions soar

Tilray began trading on the Nasdaq market in July, but its share price really began in mid-August when CEO Brendan Kennedy said major institutional investors were taking part in its IPO. , including Marley Naturals (the official mark of legendary musician Bob Marley), to recreational marijuana customers in Ontario.

Ontario's distribution agreement expands the reach of its consumer products beyond Quebec and Manitoba, where Tilray has previously announced distribution agreements, and institutional ownership validates the potential of the province. Marijuana market.

Investor optimism further accelerated in September after the company announced that sales had increased 95% year-over-year to $ 9.7 million in the second quarter. Constellation Brands& # 39; (NYSE: STZ) investment in Canopy Growth.

Tilray's annualized sales of $ 38.8 million in the second quarter represent a significant improvement over sales of $ 20.5 million in 2017 and $ 12.6 million in 2016. And the potential for sales is $ 395 million. associating with a well-off partner could generate billions of dollars in sales. experience in marketing and distribution. An agreement with a partner has not been announced, but Bloomberg's report of September 17 Coca Cola (NYSE: KO) discusses an agreement with a competitor of Tilray Aurora Cannabis (NASDAQOTH: ACBFF) Investors are increasingly hoping companies are also knocking on Tilray's door.

In addition, Tilray's shares received a boost yesterday when the Drug Enforcement Agency (DEA) authorized the export of cannabinoids containing THC and cannabidiol cannabinoids to the University of California Medical Cannabis Research Center. WCAR). with essential tremor, a disorder of frequent movement in people over 65 years.

TLRY data by YCharts.

Is it a purchase?

Tilray is in a very good position to capture sales when the Canadian recreation market opens. This is great news, as Deloitte estimates that the Canadian adult leisure market could exceed Can $ 1.8 billion ($ 1.38 billion) in 2019.

It is also well positioned to benefit from the global rise of marijuana for medical purposes. Its existing pharmaceutical distribution network could help it in important markets, such as Germany, where medical marijuana was approved last year. Tilray's partnership with Noweda, one of Germany's largest pharmaceutical distributors, could enable it to capture a significant share of the German medical marijuana market. And as the German market is much larger than Canada's, Germany could contribute significantly to Tilray's revenue in the future.

Overall, the global marijuana sector, including the black market, is worth $ 150 billion, according to the United Nations. That makes Tilray an intriguing stock. But there are reasons to approach the actions of the company with caution.

Because of its soaring share price, its market capitalization of $ 10.2 billion is 263 times greater than its second quarter annualized sales. In addition, 93% of Tilray's voting power is held by Privateer Holdings, the venture capital fund that created Tilray, and a lock-in period that prohibits insiders from selling Tilray shares expires in January 2019. If insiders sell a lot of stocks it could put pressure on weaker shares. It is also possible that the objectives of Privateer Holdings do not always match those of individual investors.

Nevertheless, I think that if stocks fall due to the expiration of the lock or due to valuation fears, aggressive investors should consider buying shares. The opportunity of the global marijuana market is huge, which could possibly solve the problems related to its valuation.