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How Tilray (NASDAQ: TLRY) Became the World's Largest Marijuana Company

Written by Jason Stutman
Posted September 22, 2018 at 8:00PM

The media was in a frenzy this week over Tilray (NASDAQ: TLRY), the Canada-based pharmaceutical company that specializes in processing and selling medical marijuana products throughout Canada and Europe.

To say the company has taken investors for a roller-coaster ride lately would be an understatement, with the stock climbing as much as 90% in intraday trading this week.

Demand for Tilray's shares reached a fever pitch on rumors (and the eventual news) that the company could break into the U.S. medical marijuana market soon.

Earlier this week, the U.S. Drug Enforcement Administration (DEA) granted the company the right to export cannabinoid products into the U.S., with Tilray aiming to begin clinical trials at the University of California San Diego.

Access to the U.S. market, with a population some 8.8x that of its northern neighbor, would be an obviously huge boon for Tilray and its leading investors.

That includes Peter Thiel-backed private equity firm Privateer, which controls 76% of Tilray’s shares.

With Tilray’s market capitalization peaking as high as $16 billion this week and Tilray now the world's most valuable marijuana company, it’s safe to say the firm has some celebrating to do.

Just a Matter of Time

It wasn’t long ago that the public consumption of any cannabis product would have been unthinkable.

But public perception is changing, as we're seeing clearly with each new round of legislation.

This Election Day, four U.S. states are slated to (in all likelihood) legalize some form of marijuana use. This comes on the heels of Vermont’s noncommercial legalization bill in January 2018 and Oklahoma’s medical marijuana ballot initiative in June.

As icing on the cake for marijuana bulls, New Jersey could soon become the first to legalize adult use of marijuana above 21.

Here’s a quick rundown of what’s at stake in just a few weeks:

  1. Like New Jersey, North Dakota could soon legalize the possession and consumption of the plant. Fun fact: If the current initiative passes, North Dakota will set the record for shortest time period between medical marijuana legalization and full-scale possession of cannabis. There must be something about a close proximity to Canada.

  2. Going with this theme, Michigan, with shores just a stone’s throw away from the Canadian North, will soon give citizens the opportunity to legalize adult possession. Also noteworthy: Michigan has a sizable medical marijuana industry, so perhaps its progress on the matter isn’t too surprising...

  3. Many will be surprised to learn that traditionally conservative Utah is slated to put medical marijuana consumption on the ballot this November — a big win for the medical marijuana industry. Currently, 30 U.S. states have some form of legal medical marijuana consumption — this would help bring the remaining 20 into the fold.

  4. Missouri has not one but three different initiatives on its ballot November 6, each offering variations on legalization.

Simply put, the writing is on the wall, and it’s not hard to imagine national legalization of adult marijuana consumption in the near future.

Money Talks

So many parties are moving toward the legal usage of cannabis by adults because the plant isn’t the only green they are seeing.

According to Arcview Market Research, the legal cannabis market could soon reach $57 billion in size — that’s up from $9.2 billion in 2017 across all of North America (including Canada).

That works out to 20% annualized market growth for an entire decade.

And contrary to popular belief, North America isn't the only burgeoning hub for marijuana sales. Just last year, Germany, as the de-facto leader of the EU with $1.3 trillion in annual medical spending, moved to legalize the use of medicinal cannabis in pharmacies.

For anyone willing to dig into the weeds (no pun intended), the reality is that there's certainly money to be made in this growing market.

That said, while the marijuana industry is growing at a white-hot rate, we wouldn't recommend buying hyped-up stocks like Tilray unless you're trying to day trade.

Despite revenues for the first six months of 2018 of just US$17.6 million, the company has sported a market capitalization 3x higher than that of U.S. Steel (NYSE: X) this week.

It should go without saying that that's absurdly expensive, even for a growth stock.

What we're witnessing here is scarcity pushing public investors into only the most obvious of weed stocks, and there are only a few out there for the masses to flock to.

This means high-profile weed stocks, particularly growers, are becoming overvalued and incredibly risky.

The reality, though, is that there's a much safer option for investing in cannabis, one that will literally pay you dividends on a regular basis.

You see, you don't have to invest in growers directly to get a piece of the emerging marijuana market. You can actually invest in the facilities and real estate they all rely on.

The best part is that after the growers pay the companies that own those facilities, those companies then turn around and pay you. Crazy as it sounds, it's true.

Investment veteran Briton Ryle calls these payouts "Reefer Royalties," which I can't help but chuckle at. Sure, it's a little cheeky, but it's entirely accurate, too.

For anyone interested, you can find all the details here

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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