Marijuana stocks are the new bitcoin

Authorized marijuana growers in Canada begin sales on October 17 and have acres of flowering greenhouses. For months, the prices of their shares are weakly related to the fundamentals of the companies, and the collapse of the last week was only the proof that the transactions became irrational. At Wednesday's height, Tilray was valued at $ 30 billion. It's more than Twitter,CBS and American Airlines.From the December 2017 high above $ 19,000, the price of Bitcoin dropped to $ 6,700, leaving many enthusiasts in tears. Expect Tilray.

It is also difficult to understand why the value of Tilray is greater than that of larger and more established rivals like Aurora Cannabisand Canopy growth.For you stock market analysts, Tilray's company value surpassed Wednesday's bullish estimates by 85 times for its 2020 sales and its estimated cash flows to 340 times the same year.

Weed stocks in Canada were already overstated when Barron examined them in a March cover. But they started becoming maniacal in August when the American liquor giant Constellation Brandshas agreed to add $ 4 billion to its investment in Canadian weed producer Canopy Growth. Aurora shares jumped 17% Monday after Bloomberg announced that the company Coca Colaon sports drinks with cannabidiol, a soothing but non-psychoactive ingredient in marijuana. Aurora warned that it had "no agreement, understanding or arrangement" with a beverage company at the moment. Then on Tuesday night, CNBC's Jim Cramer welcomed Brendan Kennedy, General Manager of Tilray, who said the marijuana industry would spawn $ 100 billion worth of companies. Hysteria took place Wednesday with 31 million shares and the stock has doubled compared to the day before, before collapsing again.

Kennedy, who would not speak to Barron, also heads Seattle venture capital firm Privateer Holdings. The firm, backed by billionaire investor Peter Thiel, has spent about $ 40 million for what now accounts for 82% of Tilray's shares. At 2:45 pm on Wednesday, this issue was worth more than $ 20 billion – a value 500 times higher.

While Tilray was booming, the shares of the real industry leader, Canopy Growth, have not kept pace. It defeats Canopy leader Bruce Linton. "It seems like every time we do something, it's good for the stocks in the industry," Linton told Barron.

The good news for Canopy should not necessarily bode well for its rivals, warns Linton. In addition to Constellation's support, Canopy holds more than one-third of all outstanding purchase orders in Canada, as well as significant market share abroad. "Our goal is to dominate the industry and do the best in the world," he says. "It will not be good for all the other companies. When I see the assessments assigned to places that have virtually no production, virtually no extraction agreements, which are not operated in several countries and have a very limited scientific research team … "

What really sent Tilray's shares into space was their scarcity, as US investors rushed into the weed train. Only 10% of Tilray's shares became free-tradeable in July, and this small capital made Tilray shares difficult to buy, borrow or sell. More than 100% of Tilray's float has changed hands every day since Canopy's August with Constellation, and it's clear that US retail investors are responsible. Several other cannabis companies are listed in Canada and the United States, including Canopy, Cronos Group,Green Thumb Industries and MedMen Enterprises – and most of their daily trading volume went to the US in the last month. That is why the other big producers in Canada would be beating the path of American trade. Both Aurora and Aphria have abandoned their US subsidiaries this year because operating in a country where marijuana remains illegal under federal law was a barrier to listing on the NYSE or Nasdaq. Thus, US investors will soon have other stocks of weeds to sample.

Tilray and his insiders will surely force the hunger of Tilray's stock by selling more. The company would be crazy not to take advantage of its good evaluation by making a follow-up offer. We asked Tilray if she had such projects. He declined to comment. Meanwhile, Kennedy and his Privateer partners are sitting on an unrealized gain of several thousand dollars. Some 66 million insider shares are locked up until mid-January 2019, unless Cowen & Co. subscribers release them. One of the incentives for Cowen to release the blockade is his own gain on about 170,000 shares bought during a round of table before the IPO of Tilray: a gain of over $ 30 million in Cowen.

But aside from the obvious demand for dynamic investors, it's hard to see why an investor would buy Tilray shares at these levels. Society compares poorly with its great rivals. Per gram sold, Tilray has the highest selling cost among major producers. And while other licensed producers in Canada are increasing inventories, before legalization in October, both Tilray's production and inventories declined in the last quarter. International revenue in the quarter totaled $ 345,000.

By the end of the week, Tilray's market value was $ 11.5 billion, but investors are not getting much for their money.

Write to Bill Alpert at [email protected]