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What happened
Turn off the lights, the party is over. This may seem like the feeling like Tilray, Inc. (NASDAQ: TLRY) it's crushed for the second day in a row. Tilray shares fell 27.1% to 11:06 EDT Friday. As was the case on Thursday, today's fiery spirit stems from no announcement made by the Canadian marijuana producer. Instead, it seems that a short pressure that propelled the stock of Tilray to dizzying heights has now abruptly ended.
So what
Tilray served as a concrete example of a short tightening over the last few weeks. The company has a low float with only 17.8 million shares available for trading. He has a high level of short interest. And Tilray recently benefited from several positive developments, including the fact that the company became the first marijuana producer to obtain approvals for the supply of cannabis flowers and cannabis oils to the important German medical cannabis market.
Source of the image: Getty Images.
Every positive news for Tilray has raised the stock. These movements, in turn, caused panic among some short sellers and began to cover their positions. The more that happened, the higher the course of Tilray's action. Of course, the more the marijuana stock has grown, the more the number of short sellers has increased.
Nothing lasts forever, and short cuts are no exception. When there are no more short sellers to bail out and drive up the stock, the short squeeze ends. This end often leads to a sinking of the stock almost as fast as it goes up. All signs indicate that this scenario is now playing for Tilray.
These fluctuations, however, have little to do with Tilray's underlying business outlook. Despite the sharp decline of the past two days, Tilray's potential for success in the global cannabis market has not changed significantly. Of course, you could also argue that the company's outlook has not changed much over time as its stock has exploded.
Now what
In the near future, Tilray's stock price will stabilize. Just as a short tightening does not last forever, the consequences last only for a limited period.
When the dust settles, investors can breathe deeply and rationally evaluate Tilray's yield potential. It is likely that the stock will still be valued at a very high price, as are most other Canadian marijuana stocks. However, Tilray is also expected to have significant growth opportunities with the opening of the Canadian marijuana market for recreational purposes in a few weeks and the expansion of global markets for medical cannabis.
It has been a crazy and crazy race for Tilray in recent weeks. The actual party may be over, but I think it's too early to turn off the lights of Tilray.
Keith Speights has no position on the titles mentioned. The Motley Fool has no position in the stocks mentioned. Motley Fool has a disclosure policy.
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