Tilray’s Highs and Lows

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Canadian medical cannabis company Tilray’s stock surged by over 77 percent in the first three trading days of last week before dropping dramatically by 47.9 percent to close out the week. The US Drug Enforcement Administration’s decision to allow the company to import cannabis into the USA for medical research helped drive the surge, abetted by CEO Brendan Kennedy’s bullish media statements that both the pharmaceutical and alcohol industries must consider partnering with cannabis companies.

 

On the potential for the alcohol industry to get involved in the cannabis boom, Kennedy told CNBC presenter Jim Kramer that “Whether you’re an alcohol company or an investor in an alcohol company, this is a global opportunity.” In terms of pharma, he added “Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you’re an investor in a pharmaceutical company or you’re a pharmaceutical company, you have to hedge the offset from cannabis substitution.” Indeed, Tilray has already linked up with Sandoz, the generics division of global pharma giant Novartis, to be an exclusive partner to them in Canada.

 

Speaking to PharmaBoardroom in March 2018, Kennedy explained the logic of the partnership thusly. “Both Tilray and Sandoz have seized an opportunity to forge an alliance between likeminded companies that are interested in providing patients with access to new medicines. We will produce co-branded products before the end of this year and are both very excited about the tremendous potential this partnership holds,” he noted.

 

On the synergies between the two organizations, Kennedy posited that, “We bring expertise in medical cannabis; we know how to cultivate and process the plant, but we are lacking the complex knowledge to build a sufficient sales force to master a market such as Canada. Sandoz is an expert in manufacturing, supply and distribution and has the know-how necessary to ensure availability of products throughout Canada.”

 

Ever-ambitious, Kennedy conjectured that, “In the future, we will be able to leverage Sandoz’ substantial sales force, which is something we could not build up on our own. Furthermore, our collaboration will involve the development of new product formulations. Sandoz already has the expertise to develop sprays, patches and many other form factors, and we have started thinking about what will be possible to develop for the Canadian and global market.”

 

However, the dramatic rise and fall Tilray’s stock – in three business days the company’s market cap dropped from a high of around USD 20 billion to USD 10 billion – offers a salutary lesson for potential investors in the still-emergent cannabis industry. As Keith Speights of the Motley Fool assesses, “Kennedy claimed that there could be several marijuana companies with market caps of USD 100 billion or more with a global cannabis market of USD 150 billion. His numbers could be right, but some investors could have failed to understand that it will be a really long time before the global cannabis market gets anywhere close to USD 150 billion.”

 

Nevertheless, as Stephen Karmazyn of Profit Confidential counters, although the future of Tilray’s stock is uncertain, “Between the huge potential political boon in the upcoming US midterm elections, and the certain boost from Canada’s soon-to-be marijuana legalization, the marijuana industry is looking like it’s headed toward a very strong ending to 2018.”


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