(Bloomberg) — Tilray Inc. posted its biggest three-day gain ever as Reddit-inspired retail traders turned their attention from GameStop Corp. to the cannabis sector.
Tilray closed up 51% Wednesday at its highest level since March 2019. The stock has soared 148% over the past three sessions, outpacing its surge in September 2018, one month before Canada legalized recreational use of marijuana.
The gains came amid a broader sector rally on potential U.S. regulatory reform and a string of positive earnings from the likes of Canopy Growth Corp., which said it expects to gain access to the U.S. market this year. The rally in Tilray shares helped push the ETFMG Alternative Harvest ETF, known for its MJ ticker, 15% higher. That marks both the biggest one-day and three-day gain for MJ.
Pot stocks have outperformed since the Democrats took control of Congress with the Georgia runoff elections in January. MJ has more than doubled since the beginning of the year and Tilray has surged over 600%.
However, most cannabis stocks are still well below the highs they reached in late 2018 when Canada became the first large economy to legalize recreational pot. MJ hit an intraday record of $45.40 on Sept. 19, 2018 and was trading around $33 on Wednesday. Tilray, which was the first pot stock to list on a major U.S. exchange, hit a high of $300 that same month in 2018.
Charles Taerk, a cannabis investment adviser, said the stocks are gaining partly because of growing optimism around U.S. legalization and partly because of retail traders piling in. Taerk is the chief executive officer of Faircourt Asset Management, which acts as an adviser to the cannabis-focused Ninepoint Alternative Health Fund.
“The Reddit crowd have turned their sights to some of the most-shorted cannabis names,” Taerk said. “It’s the same strategy that went on with AMC and GameStop.”
About 23% of Tilray’s tradable shares are sold short, according to data from S3 Partners, which could make it a ripe short squeeze target by Reddit users.
Traders widely circulated news online that Tilray had signed a deal Tuesday to distribute its medical cannabis products in the U.K. They also noted a merger arbitrage opportunity as Aphria Inc. announced a merger with Tilray in December. With Tilray’s surge, the deal is worth about C$68 per Aphria share, roughly double its price on Wednesday.
Dan Ahrens, chief operating officer and a portfolio manager at AdvisorShares, said the sharp rise of stocks is likely to be followed by a sharp decline, similar to the dramatic selloff in 2019.
“All those traders are trading on technicals alone and the fact that it’s a cannabis company alone, without any knowledge of the fundamentals and balance sheets of the companies,” Ahrens said in a phone interview.
Other pot stocks rallying Wednesday included Zynerba Pharmaceuticals Inc., Organigram Holdings Inc., Auxly Cannabis Group Inc., Aurora Cannabis Inc. and Cronos Group Inc., all up by double digits.
(Updates shares to close and adds Ahrens comment.)
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