Don’t Get Too Excited About Tilray Stock

Already trending higher thanks to improved U.S. pot legalization odds, Tilray (NASDAQ:TLRY) stock popped tremendously on Feb 10. After surging 40.8% on the previous day, the shares surged again, jumping from $42.35 to above $67, before ending the day at $63.91.

However, while the mania produced high profits for early buyers of the name, others weren’t so lucky. In subsequent days, the shares have fallen back to around $30 per share, tumbling nearly 50% on Feb. 11 alone.

So what’s next for the popular pot play? The company has reported some positive news lately, including its move into the U.K. medical cannabis market. But the major contributor to its wild ride so far this month has been speculation by retail investors.

Traders like those on Reddit’s r/WallStreetBets forum have led thousands of retail investors into “meme stocks,” producing dramatic results. The problem is that these mad rushes come and go and show few signs of delivering encores.

Outside of retail speculation, not much else can really move Tilray’s needle in the near-term. Admittedly, its upcoming merger with Aphria (NASDAQ:APHA) may give Tilray the jolt it needs to get out of its slump. But while the deal’s still pending, it doesn’t make sense to price in some or all of its potential benefits.

In the long-run, Canada-based Tilray could become a leader in the U.S. pot space, if and when the drug is fully legalized. In the meantime, the shares have more room to fall as speculators take profits or cut their losses, so stay away from TLRY stock for now.

Tilray Won’t Hold Onto Its Recent Gains

It’s a given now that pot legalization could be around the corner. With the Democratic party re-taking the Presidency and control of Congress, the chances of a fully legal American marijuana market have materially improved.

That change has helped spur interest in major pot plays like Tilray. Yet it’s not as if the election results weren’t already factored into TLRY stock. Between Election Day and the end of 2020, the shares rose, climbing from $6 to $8. After the Democrats won both Senate contests in Georgia in early January, the stock hit double digits for the first time in nearly a year.

The anticipation of marijuana legalization may help justify the mad rush into pot stocks, which is being led by Reddit traders. However, the recent gains of TLRY stock aren’t sustainable.

That’s because the users of the r/WallStreetBets community may pride themselves on holding their stocks over the long-term, but, when push comes to shove, they aren’t afraid to take their profits and run, as we saw with GameStop (NYSE:GME). And, similarly , the sudden pop of marijuana stocks is quickly turning into a rapid drop.

Unfortunately, those riding the coattails of r/WallStreetBets won’t be lucky. After buying marijuana stocks in the wake of the epic rally, many are sitting on losing positions, purchased at prices far above where the shares trade today. And, with cannabis growers having little else to excite investors in the near-term, chances are the latecomers will be stuck unloading their positions at prices well below today’s levels.

TLRY Stock Looks Poised to Drop Further

After its more than 50% move lower in a matter of days, TLRY stock may appear to be stabilizing. But, while the shares may briefly tread water, further losses could be on the horizon.

That’s because, despite the recent U.K. news, Tilray’s outlook hasn’t changed much. After the company merges with Aphria, it may finally become profitable. Yet, since the deal is still pending, it’s a bit of an overreach to price in all of the transaction’s potential benefits into the shares at this point.

With Tilray’s story still largely unchanged, there’s little to justify a rebound above today’s prices. Instead, as more traders take profits or cut their losses, expect the stock to drift back towards $20 per share and lower.

The Bottom Line on Tilray

In his Feb. 11 column, InvestorPlace Markets Analyst Thomas Yeung pointed out that, even if the company eventually captures just a sliver of the future legal U.S. pot market, Tilray could eventually be worth $70 per share. But that price target is based on potential results that won’t materialize for many years.

Right now, with TLRY stock above $30 per share, it doesn’t look to be worth buying. Reddit traders will continue to sell their Tilray shares, which could put downward pressure on the stock. And while the Aphria deal may help Tilray, the possible gains look more than priced into the shares. So investors should keep TLRY stock on their radar but avoid it for now.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.