Insider Selling Adds to the Pain Facing Tilray Stock

Perhaps no equity embodies the euphoria surrounding marijuana stocks more than Tilray (NASDAQ:TLRY). The tiny float of Tilray stock, combined with intense investor interest in marijuana stocks, took TLRY from an IPO price of $17 per share to a high of $300 in a matter of months.

Source: Shutterstock

However, Tilray stock has mostly declined since then. TLRY even failed to benefit from the surge in most marijuana stocks which occurred during the first part of the year. As insider lock-ups on Tilray stock expire, TLRY looks poised to continue its swoon, and prospects for its recovery become even more remote.

• 10 Medical Marijuana Stocks to Cure Your Portfolio

Insiders Can Now Sell TLRY

Unlike many other marijuana stocks, Tilray stock is lower than it was during the week of Christmas. TLRY has now fallen almost 80% from the $300 per share peak it reached back in September.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

At first, as I mentioned earlier, Tilray benefited tremendously from investors’ intense interest in marijuana stocks and the minimal number of shares of Tilray stock that were trading. Due in large part to these factors and  insiders’ inability to sell Tilray stock because of lock-up periods , TLRY stock seemed to do nothing but rise for awhile.

After the 180-day lock-up period ended, many insiders began to sell Tilray stock. President and CEO Brendan Kennedy sold 106,109 shares on Apr. 2. CFO Mark Casteneda also unloaded 30,000 shares. Other executives have recently sold Tilray stock.

Other Factors Weigh on Tilray Stock

Obviously, these insider sales scared other investors, further pressuring the stock price. Unfortunately for the owners of TLRY stock, the downward tide hasn’t abated for a significant amount of time.

TLRY surged from the $65 per share range to about $100 per share following the U.S.’s legalization of hemp in December 2018. However, that move proved short-lived, as the stock fell into the low $70s per share range soon afterwards. Further, unexpected setbacks to the legalization of cannabis in New York and New Jersey hurt TLRY and other marijuana stocks.

InvestorPlace’s Tim Biggam predicted that TLRY stock would continue to fall after it reported its earnings. It appears that his call was correct. TLRY beat analysts’ consensus revenue estimate and spiked by 5% following the report, but Tilray stock resumed its descent soon afterwards.

Like other marijuana stocks, Tilray’s fundamentals aren’t going to boost its shares. Despite its massive swoon, TLRY stock still trades at over 142 times its sales and almost 30 times its earnings. Also,  if the company’s net 2020 profit meets analysts’ consensus forecast, its price-earnings ratio would still be over 1,100, based on the current price of Tilray stock.

Tilray Stock Still Has Bright Spots

Still, TLRY has had its share of good news. Legalization efforts have gained some traction in other states and perhaps at the federal level. Tilray should also remain one of the top Canadian marijuana stocks,. along with Canopy Growth (NYSE:CGC), Aurora (NYSE:ACB), and Cronos Group (NASDAQ:CRON). Furthermore, analysts forecast that Tilray’s profits will increase by 332.4% this year and by 100.2% in 2020. This will help TLRY remain a significant industry player even as more U.S.-based cannabis companies begin to emerge.

However, with insiders now selling, and the forward PE ratio of Tilray stock in the stratosphere, I do not think these positive catalysts will propel TLRY stock higher. Investors should wait for Tilray stock to drop much further before buying it  or turn to other marijuana stocks instead.

Final Thoughts on TLRY

Insider sales will only add to the pain of the owners of TLRY stock. With its 180-day lock-up period now over, several top executives have unloaded more TLRY shares on the market. Those transactions are further pressuring an equity with stratospheric valuations. Unexpected political obstacles have added to the pain.