Shares of Canadian cannabis company Tilray Inc. rose 39% on Wednesday to extend its earnings from the previous day, as the same group of investors that caused the stocks of video game retailer GameStop Inc. to rise to dizzying heights seemed now have the stocks in your sights.
The group of investors who exchange messages in the WallStreetBets subgroup on Reddit were encouraging each other to do Tilray TLRY,
the next GME GameStop,
creating a small squeeze in the stock, as well as to buy APHA from Aphria Inc.,
APHA,
with which it is merging.
Korey Bauer, investment director and portfolio manager for the Cannabis Growth Fund at Foothill Capital Management, said Tilray has one of the highest levels of overdraft interest as a percentage of float among cannabis stocks, making it a natural target for the Reddit group.
At the same time, Aphria Inc. is now negotiating at a discount from the terms of the agreement announced in December, which would see the two companies merge and become the world’s largest cannabis company by revenue, he said.
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Under the terms of this agreement, Aphria shareholders will receive 0.8381 Tilray shares for each Aphria share they own. Tilray’s shares were last quoted at around $ 56, while Aphria’s shares were quoted at just $ 26.80, which means that an investor can currently buy two Aphria shares for less than the price of a Tilray share.
For more information, see: Tilray’s shares soar after the reverse merger agreement with Aphria, to create the largest global cannabis company
Tilray’s shares already saw gains of more than 60% on Tuesday, following news of an agreement with Grow Pharma to import and distribute marijuana products to the UK medical market.
To increase momentum, “we are seeing large flows of investment products and Tilray is one of the largest holdings in ETFs,” said Bauer.
The cannabis industry has recovered since the election of President Joe Biden, who is expected to adopt a more pro-reform agenda than his predecessor. Senate majority leader Chuck Schumer and two of his Democratic colleagues have already pledged to make marijuana legislation a key part of the current Congress and have promised to release the legislation soon.
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This raised hopes for an end to the federal ban on cannabis in the United States, a rigid approach that classifies it as a Class I drug, along with heroin. The ban limited the development of the sector to states that legalized it for medical or recreational purposes and, above all, kept companies out of the federal insurance banking system.
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“Legalization efforts in the U.S. appear to be advancing and increasing Canadian marijuana stocks,” said Bauer.
Many of these companies have no significant or significant exposure to the United States, however, he said. “We think management teams should use this opportunity to strengthen balance sheets,” he wrote.
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Hopes for the sector were also raised by moves to legalize in more states, with the expectation that New York will become the next to legalize and form a large market for the plant and its products.
New York Governor Andrew Cuomo has included cannabis legalization in this year’s budget and said he hopes to create more than 60,000 jobs, stimulate $ 3.5 billion in economic activities and generate more than $ 300 million in tax revenues as well. that the program is fully up and running. This money is very necessary, given the $ 15 billion deficit the state faces with revenue being wiped out by the coronavirus pandemic.
Other cannabis stocks also rose on Wednesday, with Canopy Growth Corp. CGC,
Weed,
up to 5%, Cronos Group Inc. CRON,
CRON,
up to 12% and Aurora Cannabis Inc. ACB,
ACB,
up to 14%.
Shares of Sundial Inc., a low-cost stock that has already valued more than $ 1 billion, were up 74%.
Cannabis ETF THCX,
rose 12% and gained 154% in the year so far, while the S&P 500 SPX,
gained 16%.