Tilray shares slip as Jefferies delivers bearish call

Weed high-flier Tilray (TLRY) may not be a long-term frontrunner in the cannabis industry, according to at least one analyst.

Jefferies equity analyst Owen Bennett on Friday initiated coverage of Tilray’s stock with an Underperform rating and price target of $61. The bearish assessment comes as Bennett sees the Canadian pot stock falling behind some of its peers as the nascent industry continues to develop.

“We’d suggest the names that Tilray needs to be compared to are Canopy (CGC) and Aurora (ACB). To this, when analyzing the business we think there are a number of areas where Tilray is lacking vs. its closest peers,” Bennett wrote in a note.

“We appreciate it is well-placed in medical but future value here will be driven by IP for which [there is] little visibility near-term,” he added.

Looking ahead, Tilray’s “approach to recreational does not appear as well thought through, capacity could be limiting, positioning for derivatives does not stand out amongst peer best, and optionality in the U.S. is less impressive,” Bennett added.

Shares of Tilray pared some losses from early trading after the release of the note, declining 3.47% to $67.30 each as of 10:07 a.m. ET. In pre-market trading, the stock fell as much as 8.6% to $63.70.

Bennett also noted that the company’s share structure “raises risk of increased volatility.” Privateer Holdings, for which Tilray CEO Brendan Kennedy is executive chairman, holds about 75% of common shares outstanding, resulting in small float and frequently turbulent trading.

Privateer released a statement saying that it would not sell any of its shares at the end of Tilray’s IPO lock-up period in January through the first half of 2019. however, “it’s not known to what extent it may choose to sell in the second half of 2019 and beyond, thereby meaning the risk of increased volatility vs. peers remains,” Bennett said.

Some investors may also be over-emphasizing the potential of some of the partnerships Tilray has recently forged, Bennett added. Tilray in December announced it had signed an agreement with Budweiser-maker Anheuser-Busch InBev SA (BUD) to jointly research beverages infused with THC and CBD. In January, Tilray also signed a revenue-sharing agreement to market and distribute consumer cannabis products with Authentic Brands Group, the owner of Nine West, Airwalk, Frye and Tretorn shoe labels.

“While potentially beneficial, we think the market has overestimated the near-term significance and value creation” of these deals, Bennett said.

Bennett first initiated coverage on the cannabis industry in late February, rating two peer pot stocks – Cronos (CRON) and Hexo (HEXO) – as Underperform. Five others were rated as Buy, and two as Hold.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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