Why is Tilray's stock sensitive to price fluctuations

Cannabis grower Tilray Inc. had one of the craziest trading sessions in her memory on Wednesday, stopping trading five times at the end of the session, but the final result – a 38% gain – became normal for one stock is more sensitive than others to price fluctuations.

Tilray

TLRY, + 38.12%

Volatility and extraordinary meteoric gains from its initial offer of $ 17 per share in July – closing at $ 214.06 on Wednesday after reaching $ 300 – is the result of the convergence of several factors: a relatively small number of outstanding shares few investors can lend the stock to short sellers. The result is a stock that can rock wildly on the basis of relatively minor ads from him, or even news of cannabis competitors.

Tilray has only 17.8 million shares available for trading, a very small number – for comparison, the cannabis producer Cronos Group Inc.

CRON, + 9.78%

CRON, + 8.77%

has a float of nearly 196 million shares, while Aurora Cannabis Inc.

ACBFF, -0.82%

CBA -1.36%

has nearly 912 million shares available for trading. With so few stocks available, it is easier for a small number of investors interested in acquiring or divesting of a small number of shares to push the price to up or down.

Meanwhile, there is a huge amount of transactions that is helping push demand for the limited number of Tilray shares. Wednesday, 31.5 million shares have changed hands, according to FactSet, while the average volume of the last five days is 17.8 million shares, the same number of shares held by the public sector.

Little Tilray's chariot will not last forever. The Company's lock-up period will expire 180 days after its IPO on July 19, allowing insiders such as officers and employees, as well as other institutional shareholders and investors, to openly exchange their shares. Even after the deadlock expires, Privateer Holdings – the venture capital company that gave birth to Tilray – will still hold the vast majority of shares, with 75 million shares.

Of the other institutional owners who hold Tilray are however not as well known as Privateer. The company completed a financing round several months before its IPO but did not disclose the investors.

Part of the reason for the volatility of stock prices could also be a significant gap between supply and supply. On Wednesday, the difference between what investors were selling and the bid was $ 2; the offer to buy on Apple Inc.

AAPL, + 0.06%

For example, can usually be measured in cents.

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Because of these factors, Tilray's announcements and other developments in the cannabis industry can have a disproportionate impact on stock prices – after Constellation Brands Inc.

STZ, + 0.77%

$ 4 billion investment in another cannabis producer, Canopy Growth Corp.

GSC -4.89%

CANNABIS, -5.75%

Tilray shares rose 16% over the day.

Constellation's massive gamble on the cannabis industry has been marked by a wave of activity as Canada prepares to legalize recreational marijuana on October 17th. Other drinks giants like Diageo PLC

WD -0.70%

and Coca-Cola Co.

KO + 0.07%

would have had an agreement with cannabis companies, which fueled gains. And Canadian provinces, which are accused of selling marijuana, have released quantities and cannabis suppliers that they intend to buy before the month of April. October.

Inventories have even increased after the release of these data in relatively small provinces such as Nova Scotia (population 950,000), although they generally do not contain information on quantities from specific suppliers. .

See also: As Tilray soars, short sellers continue to bet against pot stocks

Despite the low float and high short-term interest, Tilray's shares are not short-term, said Ihor Dusaniwsky, director of predictive analytics at S3 Partners. A short tightening is a market phenomenon when a sharply short stock rises rapidly, causing the shorts to exit short positions, usually at a loss. Dusaniwsky said Wednesday on Twitter that 3.5 million shares were missed at the end of August and that number has not changed much since.

Dusaniwsky said that because of the blockage and the short-term interest, there are literally more securities that investors can borrow to miss the name. What seems to be driving the price, said Dusaniwsky at MarketWatch Tuesday, it is the buyers who offer Tilray shares.

Tilray's shares ended Wednesday's delusional session, up 38 percent to $ 214.06, but fell in after-hours trading. The S & P 500 index

SPX, + 0.13%

up 0.1% on Wednesday.