Discover the marijuana stock that has already doubled in 2021
Which stocks have the potential to double this year? Many investors would probably put marijuana stocks at the top of the list. I certainly would.
Delivering a return of 100% or more in 12 months is a fantastic achievement. But a pot stock just made it in just two weeks. Check out the marijuana stock that has already doubled (and more) in 2021: Tilray (NASDAQ:TLRY).
A demanding 2020
I suspect few investors would have picked Tilray a few months ago as the top winner among pot stocks in 2021. After all, the Canadian cannabis producer has had a disastrous 2020.
Tilray shares lost more than 50% of their value last year. The COVID-19 pandemic caused the stock to fall in the first quarter. It also had a negative impact on Tilray’s sales, especially in the second quarter. The company said its overall revenue fell in the second quarter compared to the first quarter. This decrease is mainly due to the decline in Canadian sales of recreational and medical cannabis related to the pandemic.
The coronavirus-related sell-off has been difficult to overcome. Although Tilray shares have rebounded somewhat, they have never come close to regaining the highs set earlier in 2020.
The company had more problems than just the pandemic. Tilray continued to lose money quarter after quarter. In May, the cannabis producer closed its High Park Gardens facility 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 stock had soared almost 125%. Its shares are now up almost 140%. What has changed for Tilray to make this new year so happy? The seeds of the outbreak were planted in the last two months of 2020.
More importantly, Tilray and Aphria (NASDAQ: APHA) announced on December 16, 2020 that they planned to merge. The proposed transaction was intriguing. The combined entity will retain the Tilray name. However, Aphria 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 merger. Tilray shares continued to decline in the last two weeks of 2020. However, there was another catalyst along the way that had been set in motion a few months earlier.
In November, no candidate in the two Georgian senatorial elections obtained more than 50% of the total votes. That meant runoff elections were needed for both seats and were scheduled for Jan. 5, 2021. The Democrats won both races, giving their party effective control of the U.S. Senate in the process.
Canadian marijuana stocks, including Tilray, soared on election results as investors anticipate a Democratic-controlled U.S. Congress will move toward decriminalizing marijuana at the federal level. While this would not mean nationwide legalization of marijuana in the United States, as is the case in Canada, it would open the doors for Canadian companies to enter the lucrative cannabis market in the United States.
The following week, after Georgia’s runoff election, Aphria announced record results for the second quarter of fiscal 2021. This provided another boost to Tilray’s stock price.
Aphria and Tilray have a few hurdles to clear before their merger is finalized. Shareholders of both companies must approve the transaction. Regulators in Canada, Germany and the United States must also agree to the deal. However, both companies expect the deal to close in the second quarter of 2021. Assuming that happens, Tilray will soon become a much different and much bigger company.
Can the “new” Tilray double again this year? Probably not. Of course, the company’s fortunes could be much greater if cannabis reform legislation is passed in the United States. The prospects for federal decriminalization of marijuana are better than they have ever been. However, the optimism that Tilray could enter the US market in the not too distant future is already partially priced into its stock price. Still, there is a real possibility that Tilray stock will rise, even after more than doubling so far this year.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.