Which stocks have the potential to double this year? Many investors would likely put marijuana stocks at the top of the list. Definitely yes.
Offering a return of 100% or more in 12 months is a fantastic achievement. But a stockpile of marijuana only removed it in two weeks. Check out the marijuana stock that has already doubled (and even more) in 2021: Tilray (NASDAQ: TLRY).
Image source: Getty Images.
A challenging 2020
I suspect that few investors would have chosen Tilray a few months ago as the first winner among marijuana stocks in 2021. After all, the Canadian cannabis producer had a disastrous 2020.
Tilray’s shares lost more than 50% of their value last year. The COVID-19 pandemic caused stocks to plummet in the first quarter. It also negatively impacted Tilray’s sales, especially in the second quarter. The company reported that its overall revenue fell in the second quarter compared to the first. This decline resulted mainly from the reduction in Canadian medical and recreational cannabis sales related to the pandemic.
The coronavirus-related settlement was difficult to overcome. Although Tilray’s shares rebounded somewhat, they never came close to recovering the highs set in early 2020.
TLRY data by YCharts.
The company had more problems than just the pandemic. Tilray continued to lose money quarter after quarter. In May, the cannabis grower closed his plant in High Park Gardens to cut costs. It also issued more shares in March to raise additional cash, a move that further diluted the value of existing shares.
Behind Tilray’s Happy New Year
In the first two weeks of 2021, however, Tilray’s shares had skyrocketed nearly 125%. Its shares are now close to 140%. What changed for Tilray to make this a happy new year? The seeds for the surge have been planted in the last two months of 2020.
Most importantly, Tilray and Aphria (NASDAQ: APHA) announced on December 16, 2020 that they planned a merger. The proposed transaction was intriguing. The combined entity will retain the name Tilray. However, Aphria’s shareholders will own 62% of the company, making the deal a reverse acquisition of Tilray by Aphria.
Investors did not immediately react positively to the Aphria-Tilray combination. Tilray’s stock continued to decline in the last weeks of 2020. However, there was another catalyst on the way, which was created a few months earlier.
In November, no candidate in both Georgia Senate contests received more than 50% of the total vote. This meant that run-off elections were necessary for both seats and were scheduled for January 5, 2021. Democrats won both contests, giving their party effective control of the US Senate in the process.
Canadian marijuana stocks, including Tilray, skyrocketed with election results, as investors are predicting that a Democratic-controlled US Congress will move toward decriminalizing marijuana at the federal level. While this did not mean national legalization of marijuana in the US, as is the case in Canada, it would open the door for Canadian companies to enter the lucrative US cannabis market.
The following week, after the second round of the Georgia elections, Aphria announced record fiscal results for the second quarter of 2021. This gave another big boost to Tilray’s stock price.
What is the next?
Aphria and Tilray must skip some obstacles before their merger is completed. The shareholders of both companies must approve the transaction. Regulators in Canada, Germany and the United States must also approve the agreement. However, the two companies expect the transaction to be completed in the second quarter of 2021. Assuming that happens, Tilray will soon become a very different company – and a much bigger one.
Can the “new” Tilray double again this year? Probably not. Of course, the company’s fortunes could be much greater if marijuana reform legislation is passed in the U.S. The prospects for federal marijuana decriminalization are better than ever. However, the optimism that Tilray could enter the US market in the not-too-distant future is already partly embedded in its share price. Still, there is a real possibility that Tilray’s shares could rise, even after more than doubling so far this year.