Tilray (TLRY) and other marijuana stocks tumbled on Thursday after the recent cannabis IPO got hit with an analyst downgrade from Northland Capital.
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The downgrade came as Tilray secured another supply agreement in Canada, ahead of that country's legalization of recreational cannabis next month.
Northland analyst Mike Grondahl, who downgraded Tilray to market perform from outperform, said the stock's valuation was "complex," according to MarketWatch. He added that "one needs to fully appreciate the pendulum swinging toward medicinal and recreational use of cannabis globally."
But Grondahl said there was still a lot to like about Tilray.
Among the positives he cited were Tilray's partnership to develop medical products with Sandoz Canada, a division of Novartis (NVS). He also cited Tilray's relationship with Privateer Holdings and marijuana information website Leafly, along with distribution deals with Shoppers Drug Mart, Pharmasave and various Canadian provinces.
But he said that following Tilray's big stretch higher, "we believe the risk/reward is far more balanced at this time."
Marijuana Stocks Tumble
U.S.-listed marijuana stocks slid in the stock market today, after leaping higher on Wednesday. Tilray coughed up 10%. Canopy Growth (CGC) was down 5.7%. Cronos Group (CRON) lost 9%.
Still, Tilray, which went public in July, has turned in the best performance of any IPO on a U.S. exchange so far this year, Bloomberg reported on Wednesday.
Marijuana stocks jumped Wednesday after Constellation Brands (STZ), the beer-and-wine company that has invested in Canopy Growth, talked up the global cannabis market's potential.
But the SEC on Wednesday also issued an alert warning of investing scams as hype surrounding the cannabis industry reaches a boil.
Tilray Supply Deal
Tilray on Thursday also that it had received the green light to supply recreational marijuana to the Canadian province of Prince Edward Island when recreational legalization begins on Oct. 17.
The purchase order, from Prince Edward Island Cannabis Management, will allow Tilray to supply the region's four cannabis stores and its online shop. Tilray said it intends to supply Prince Edward Island through its affiliate High Park. That affiliate was created to serve the recreational market.
Tilray and other Canadian pot producers, like Canopy Growth and Cronos, have racked up supply deals with Canada's provinces ahead of recreational legalization.
Tilray's announcement did not contain details on how much cannabis it would supply to the province.
Supply size became a cause for concern among marijuana investors last week. Short-seller Citron Research, in a report last week, questioned why Cronos hadn't disclosed such information in some of its supply announcements.
Shares of Cronos crashed nearly 30% following the report's release. This week, the short-seller said Tilray's stock was "by far" the "most expensive" in the space.
Some analysts disputed Citron's attempted takedowns. Cronos last month also inked a five-year deal to supply the Canadian business of Cura, a cannabis company in Oregon, with at least 20,000 kilograms of cannabis yearly.
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The post Marijuana Stocks Tumble After Year's Best U.S. IPO Now Looks 'Complex' appeared first on Investor's Business Daily.
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