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Pot stock Tilray On The Watchlist to short ahead of collapse

By Lucian Miers | Thursday 13 September 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

It is true that it is not normally a great idea to short a company’s shares simply on the basis that its value is crazy because, as we all know, crazy can get a lot crazier. As a general rule it pays to wait for weakness in a crazy share price of, say 25%, rather than attempt to call the top.

With that in mind I have added NASDAQ-listed Canadian pot stock Tilray (TLRY) to my watchlist with a view to selling it on such a decline. Tilray came to the market in July at $17 and has more than quintupled since then to $93 for a market cap of $8.6 billion. In the three months to June it lost $12.8 million on sales of $9 million and has net assets of around $35 million.

The current euphoria on all things marijuana was further stoked last month by Constellation Brands’ investment of $4 billion into Tilray rival Canopy Growth, which trades on the NYSE. Curiously that deal at $48 per share seems to have put a brake on the Canopy share price. It is now “only” $50 and the hot money has moved to Tilray.

Insofar as there is any rationale for the absurd valuation, it is that Diageo or some other booze maker, not wishing to miss out on a good thing, will seek a tie up with Tilray à la Constellation. The idea, I suppose, is that rather than enjoying a pint of Guinness and a joint separately, like in the old days, idle punters will be able to drink a marijuana-laced pint thus avoiding anti-smoking regulations as well as freeing up a hand for a game of darts or a bag of crisps.

Sounds crazy. Welcome to the top of the bull market. So to be on the safe side, Tilray will represent excellent short value after a 25% decline. If $93 proves to be the peak then around $70 should do the trick.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE

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