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The dot-bong bubble? Here's why the Tilray hype might burn out

FILE- In this July 19, 2018, file photo Brendan Kennedy, third from right in front, CEO and founder of British Columbia-based Tilray Inc. (AP Photo/Bebeto Matthews, File)

Canadian cannabis companies are scrambling to list on U.S. exchanges to tap into the flurry of investor interest behind Tilray Inc.’s (TLRY) blistering, yet brief, claim to the world’s most valuable pot company title, according to a portfolio manager closely monitoring the sector.

NASDAQ-listed shares of the Nanaimo, B.C.-based cultivator touched US$300 on Wednesday, spiking more than 1,600 per cent above its $17 initial public offering price in July. The stock retreated to the $130 range in Friday’s session. That pullback still leaves the company’s market value roughly on par with Canadian Tire Corp. (CTC-A).

Greg Taylor, a portfolio manager at Purpose Investments, said Tilary’s roller-coaster volatility is due in part to its tiny 10-million share float garnering big attention south of the border. He said that “scarcity factor” will be short-lived as more Canadian cannabis companies crowd onto U.S. exchanges.

“The interesting thing is that almost every other company that I’m seeing listed in Canada is actively pursuing a U.S. listing right now,” Taylor told Yahoo Canada Finance. “I think the scarcity factor in the next month or two could go away as more companies work on switching to the U.S.”

Tilray has handley outperformed its two Canadian-headquartered, U.S.-listed peers – Canopy Growth Corp. (CGC) and Cronos Group Inc. (CRON) – in recent weeks. The company was the last of the trio to stage a U.S. IPO, luring retail investors anxious to get in on the ground floor of a large pot company while they still can.

“It caught a lot of attention. I think what really set it apart was that it was a direct to NASDAQ IPO, which opened up the audience for it to get a lot bigger,” Taylor said. “It’s sometimes difficult for Americans or global investors to buy on the Canadian exchange, especially the CSE (Canadian Securities Exchange).”

Alberta-based Aurora Cannabis Inc. (ACB), which currently trades on the Toronto Stock Exchange, is reportedly pressing ahead with plans for a listing on a major U.S. exchange. Chief corporate officer Cam Battley told the Financial Post on Tuesday the company is “targeting the month of October.”

“They are absolutely seeing this,” Taylor said, referring to other Canadian companies watching Tilray’s headline-grabbing U.S. market movements.

RETAIL REEFER MADNESS

The Purpose Marijuana Opportunities fund participated in Tilray’s IPO, led by New York firm Cowen and Company in July, selling the last of its shares a few weeks ago at $85.

Taylor continues to heap praise on the company’s operations. The decision to sell, he said, was purely a function of Tilray’s soaring valuation. He recently joked that he would have to throw away his CFA to value the company at $7.5 billion, based on 20-times projected 2020 sales.

“It got well above our target range for valuation,” he said. “I think a lot of dedicated marijuana investors and institutions that are allowed to invest in it have been trimming or are completely out. They were out before $100.”

Taylor noted that a recent appearance by Tilray CEO Brendan Kennedy on Jim Cramer’s widely-followed CNBC show “Mad Money”  helped to drum up a U.S. retail investor interest following.

In the Sept. 18 interview, Kennedy boasted that investing in cannabis companies is “a great hedge” for pharmaceutical companies, given the drug’s disruptive potential in the medical field.

Tilray announced a strategic partnership with Sandoz Canada Inc. in March, the first deal between a major pharmaceutical firm and a Canadian pot producer. On Tuesday, Tilray announced approval from the U.S. Drug Enforcement Administration to import pharmaceutical-grade medical cannabis for a clinical trial.

In the CNBC interview, Kennedy pegged the value of the global medical marijuana industry at US$100 billion, and talked up Tilray’s recreational ambitions beyond Canada.

THE DOT-BONG BUBBLE?

Taylor is among the chorus of observers comparing the frenzy around marijuana stocks to the dot-com crash.

As Tilray shares crested over $200, he said the stock is “starting to look like one of the greatest mania stocks I have ever witnessed, and I was hired to manage dot-com companies in the 90’s.”

“Coming out of this euphoria phase, we are going to have some global players,” Taylor said. “But I think it is still too early to say which are going to be the Amazons and Googles, and which are going to be the Pets.coms.”

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