Tilray (NASDAQ:TLRY) CEO Irwin Simon was recently interviewed by Yahoo Finance about the future of the cannabis industry. He suggested the Tilray shareholder base is bound to change over the next 18 to 24 months. That’s excellent news if you own TLRY stock.
For anyone who’s followed the cannabis industry since before Canada legalized its recreational use in October 2018, the ongoing references to the U.S. federal government legalizing cannabis must seem like a broken record.
I googled the words “U.S. federal legalization cannabis,” and one of the earliest articles I could find on the subject was a CNN opinion piece from November 2019.
However, I’m pretty certain if I took the time to keep looking, I’d find plenty of references earlier than 2014.
I can remember giving my aunt a copy of Peter McWilliams’s book, Ain’t Nobody’s Business If You Do: The Absurdity of Consensual Crimes in a Free Society when I was a younger man. Published in 1993, it was when I first realized that the federal government was hopelessly out of touch with a wide swath of America.
“Marijuana legalization is a policy no-brainer. Any society that professes to value liberty should leave adults free to consume marijuana,” stated Jeffrey Miron, the author of the 2014 CNN opinion piece I referenced earlier.
A no-brainer, indeed. And yet, here we are almost three years after Canada legalized recreational cannabis, and Congress continues to bumble and stumble toward federal legalization.
In Simon’s Yahoo Finance interview, he makes it clear that Tilray does not touch the flower in the U.S. market.
“Until legalization does happen, we cannot touch the plant and not touch anything in the U.S. as we’re both a NASDAQ and Toronto listed Stock Exchange company. But with the Schumer bill and the Booker bill that’s in place that’s been proposed today, I see over the next 18 to 24 months that cannabis in some format will have legalization.”
What a terrible position to be in. Locked out of the world’s biggest pot market because Uncle Sam’s political system is so messed up. Tilray’s loss, however, is the multi-state operator’s (MSOs) gain.
In 2021, the top five Canadian cannabis stocks were projected to make zero profits. In contrast, the 2021 profit estimate for the top five MSOs was $1.5 billion.
But I digress.
Until the feds legalize the recreational use of cannabis, Tilray will be forced to focus on Canada and Europe.
The Current Shareholder Base
Simon admitted that retail investors account for 80% of the company’s shareholdings.
“In regards to technology, they’re [retail investors] very smart, and they’re consumers of our products. And they put their money where their mouths are, and they’ve invested into Tilray,” he said. “So very much so, I am a big fan of retail shareholders.”
As much as Simon professes his appreciation for the retail investor, the big institutional buyers drive share prices through the roof.
At present, despite the fact institutions can own TLRY because it doesn’t touch flower in the U.S., only 20% of its shareholder base is professionally managed money.
That’s a reality that has Simon constantly reaching out to the big institutions to shake some money out of those trees. It’s an arduous process.
Consider that the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) owns 8.24 million shares of TLRY stock worth approximately $113 million. Tilray is the ETFs second-largest holding.
Now consider Altria (NYSE:MO). Its products are arguably much worse for you than cannabis, and yet the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) owns 18.9 million shares of the cigarette producer. Its shares are currently valued at $905 million.
To the institutions, Tilray is still off-limits relative to MO, but that’s going to change.
The Bottom Line
Over the past seven days, according to QuiverQuant.com, TLRY stock has gotten 201 mentions on WallStreetBets through July 27. That’s down 47% from the previous week. On the other hand, the stock in the 10th position on the subreddit had 459 mentions over the past week, more than double TLRY.
The reality is that Tilray won’t be able to get back to $30 until the 80/20 balance between retail and institutional investors moves to 50/50 or higher.
Until Tilray can benefit more directly from the U.S. recreational use cannabis market, it’s going to be difficult for Simon to bump up its institutional ownership.
In the meantime, I continue to believe that Tilray is a good buy under $20. However, patience is required because the institutions aren’t ready to do the heavy lifting required to move TLRY stock out of the teens.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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