An employee inspects cannabis plants in the grow room of the Aphria Inc. on Wednesday, January 13, 2021. Diamond plant in Leamington, Ontario, Canada. Tilray Inc. and Aphria Inc. agreed to combine their activities and form a new giant in the fast-growing cannabis industry.
Annie Sakkab | Bloomberg | Getty Images
Shares of a handful of cannabis stocks soar Wednesday, the latest set of targets from the Reddit trading community betting on the federal legalization of the plant under the new Democratic government.
Tilray’s shares are up about 25% on Wednesday, dropping the share’s annual earnings to over 530%. Canopy Growth is up 4%, adding to its 100% rally in 2021. Aphria is also down 10% on Wednesday, adding to its 275% gain this year. Aurora Cannabis is up 11%, bringing its gains to over 100% since the beginning of the year.
The cannabis company group is drawing the attention of the same WallStreetBets Reddit army that contributed to GameStop’s epic brief press last month. Several posts on the social media forum show that users are expressing optimism about the positive effects of the shares.
“$ TLRY $ APHA calls since 5/1/2021 brought me over $ 500k today. Still think it has a lot of benefits,” said a Reddit post.
“Weeds are about to make me a millionaire by 2021,” said another post, with over 107,000 likes.
“We believe the rally in Canadian names is mainly driven by private investors, perhaps fueled by Robinhood and Reddit, which is mostly accumulating in Canadian cannabis names,” Pablo Zuanic, analyst at Cantor Fitzgerald told CNBC. “I’m not going to say it’s a GameStop type thing, but the Canadian rally is not entirely based on fundamentals. But when we talk to customers, we tell them they are carefully trying to short-circuit these Canadian names because you know what up there with GameStop on the up. “
The movement in pot stocks may also be related to high short interest rates, which measure how much of the company’s traded stock is used for betting against the company. GameStop and AMC Entertainment were targeted in part by retailers because their high short-interest rates made the stocks attractive candidates for a so-called short squeeze. Tilray’s short-term stake is equal to 22.5% of the shares available for trading, according to FactSet. Official short-term interest data is current as of January 29.
“The feedback is that some of the message boards put the big high profile names in their reach,” W. Andrew Carter, an analyst at Stifel told CNBC. He has a sales rating on Canopy Growth and Aurora. Stifel has a hold rating on Aphria and Tilray.
“The shorts have been going home year round, so the relaxing isn’t so much of a tailwind as the early price action, it’s just so much buying and not much resistance,” said the analyst. “It’s very difficult to justify where these stocks are currently trading.”
While the Reddit merchants are seemingly optimistic about the names, Wall Street has a different tune. Of the 14 analysts covering Tilray, only two have a buy rating for the stock, according to FactSet. Of the 20 analysts covering Canopy Growth, only two recommend buying the stock, and of the 11 analysts covering Aphria, seven have a buy rating.
“This is completely scripted for the anti-establishment movement on WSB and Reddit. They are feeling their crowdfunding oats and are now targeting any social disruption they can cause,” Tim Welsh, founder and CEO of asset management consultancy Nexus Strategy, told CNBC. “And no better historical symbol to enhance personal freedom and revolution than pot.”
Part of the discussion about Reddit has been about the upcoming merger between Tilray and Aphria. According to a December press release, Aphria shareholders are expected to receive approximately 0.84 shares of Tilray per share of Aphria when the deal closes.
Goldman Sachs chief US equity strategist David Kostin said on “Squawk on the Street” that the gains for popular Reddit stocks were linked to a strong start to the year for small caps and an ongoing wave of new special purpose acquisition companies.
“The excess amounts, if you like, or buoyancy or foaminess, certainly exist in some industries … but at the end of the day, the rates are super low,” Kostin said.
Democrats aim for pot
The cannabis companies have also been boosted by the intentions of the Democratic party, which now has the White House and a majority in Congress, plan to legalize the plant at the federal level.
Canaccord Genuity analyst Matt Bottomley lowered Canopy Growth to sell off hold on Wednesday, saying the Canadian company’s stock price had risen too far given the US legalization landscape.
“While we believe it is possible for CDN LPs to ultimately secure THC exposure in the US, we do not foresee any federal cannabis legalization in the US in the near term and believe that the increase in CGC value is unlikely at this time. a corresponding fundamental benefit will be gained., ”Bottomley said in a note.
Tilray is no stranger to the brief press that took place last month at GameStop and AMC. In 2018, shortly after it went public, the Canadian pot maker’s stock became entangled in a wild short push and rose about 1,400% on an intraday basis between July and September of that year.
Tilray CEO Brendan Kennedy told CNBC during the GameStop drama that he had PTSD from his own short squeeze years before that.
“I remember getting five different phone calls from Nasdaq in one day saying our shares were being shut down because the short sellers were being squeezed out so hard,” Kennedy told CNBC’s “Squawk on the Street.” “My advice to those CEOs would be that at times like this, your company is not your share and your share is not your company.”
– with reporting from CNBC’s Kevin Stankiewicz.
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