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How desperate is the situation for cannabis stocks? tilray (NASDAQ:TLRY) announced two new edible chocolate products on December 22nd. TLRY stock soared nearly 10% on the news.
I say hopeless because the Biden administration’s announcement of 11 pardons for people convicted of marijuana-related crimes is likely the real reason the stock price went up. be. Investors are desperately looking for signs that the federal government will move forward with legalizing marijuana.
I’ve always liked the growth in the work of Tilray CEO Irwin Simon (also Canadian); Hein Celestial Group (NASDAQ:hein) He served as CEO for 25 years and left behind a mixed legacy. He faces the same problem with Tilray.
In his top job since January 2019, Simon’s has made lemonade from lemons over the past two years, moved the company into the alcoholic beverage space (craft beer and spirits), and achieved profitable growth.
Simply put, with a dysfunctional Congress and a real possibility that former President Trump will seek a second term in 2024, cannabis will be much more likely than it was when Biden took office. It’s not like we’re looking at that.
As a result, TLRY stock appears to be stuck in a neutral state, with few long-term catalysts to get out of penny stock status.
Is all hope lost? probably.
TLRY stock optimist
The last time I wrote about Tilray was November 11th. I acknowledged that Simon’s diversification plan was creating scale but not profits. Add to that Canada’s market share lead, which seems irrelevant considering the amount of unsold inventory, and you’re at a loss to find a plausible argument as to why anyone should buy Canadian stocks.
Full disclosure: Three days earlier, I included the company in a list of cannabis stocks to buy and prefaced my recommendation by advising people with heart disease to avoid its fluctuations.
We recommended it to aggressive investors because the rewards far outweigh the risks. Buying Tilray stock is like buying a lottery ticket. You probably won’t win big, but you can and can’t win if you don’t buy.
part of me investor place Colleagues also remain open about Tilray’s future profits.
Faisal Humayun, like me, also sees the wisdom of diversifying into alcoholic beverages such as craft beer. Cost reductions could generate even more cash flow in 2024.
In mid-December, InvestorPlace’s Rich Dupree suggested that legalization overseas could make small-cap stocks worth their weight in gold. For example, Germany is set to legalize recreational use in the first half of 2024, giving Tilray’s European operations a major boost.
I think that’s the interesting thing about investing. There’s still hope for Tilray’s cannabis business, but it looks like it’ll never last long enough to produce meaningful results that investors can bite into.
The most recent investors are from Missouri. Tilray has to show them that Germany’s potential is real.
Is there a possibility of a short squeeze?
Duprey mentioned the possibility of a short squeeze as a future catalyst for TLRY stock. In mid-December, 16% of outstanding shares were sold short by investors.
In the two weeks since then, that percentage has risen to nearly 17%, or 17.2% of the float. Given his 65-day average daily trading volume of 16.3 million shares, it would take an average of 8 trading days to cover all of his currently missing 125.22 million shares.
What will happen to short sellers in 2023?
Short sellers lost $105 million on bets on cannabis stocks in the first nine months of this year, according to September data from S3 Partners LLC.
“If the gains are too exaggerated, or if these actions take longer than expected to materialize, we could see lower stock prices in the future and more short interest in the sector.” bloomberg We reported comments from Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3.
Bloomberg reported. MJ PurePlay 100 Index It rose 18% in the first 17 days of September. But by the end of October, the index had lost all of those gains. It rose 22% from Nov. 1 to Dec. 27, suggesting 2023 will end in the red.
Tilray is the sixth largest holding by weight. It’s up 25% since Nov. 1, further hurting Tilray’s short sellers.
Will the shorts scar last until 2024? can.
In September, short seller Kerrisdale Capital released a report highlighting reasons to bet on Tilray. One of the biggest is the massive dilution implemented to hide losses. The report noted that $24 million in cash payments it had to make to suppliers turned into $100 million in stock issued by the company over the past two years to settle that debt.
Mr Kerrisdale believes that if the company had paid cash to suppliers, its 2022 profit before interest, tax and depreciation would have been zero.
As mentioned in the Nov. 8 article, this supplier could have said no to the stock payment, but it did not. This suggests there was no problem with the repayment terms, but why should Kerrisdale and Tilray shareholders do this?
Since the merger with Aphria in May 2021, there has been significant dilution for shareholders. It seems like an overstatement to say it’s all about hiding losses. Tilray, like other struggling cannabis companies, was trying to stay solvent.
The change in the U.S. cannabis sales schedule won’t help Tilray right away, but it should be enough of a catalyst to keep TLRY stock rising in 2024. That could be enough to cover the shorts and cause a short squeeze.
But let’s not joke. Tilray is intended for active investors only.
On the date of publication, Will Ashworth did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author; InvestorPlace.com Publishing Guidelines.
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