Tilray Overtakes Canopy Growth Inc As World’s Most Valuable Cannabis LP

Benjamin A. Smith
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For the first time ever, Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) is not the most expansive cannabis company in the world.  With Tilray’s surging price action continuing to defy gravity—up $16.01/share today and ↑711.52% from its IPO offering price—the market has afford it a larger market capitalization (MC) over Canopy Growth. We explore further.

The official delineation point arrived this afternoon, when the market caps intercepted each other from opposite directions. The calculations were derived based on Canopy Growth non-diluted MC based on its Toronto Stock Exchange listing, and Tilray’s USD value converted to the latest USD/CAD fx exchange rate (1.3002). Tilray’s gains today gave it an MC of C$14.62 billion, while Canopy Growth’s losses dragged its MC slightly under that total.

Optically speaking, the crossover creates quite the odd paradox. Balance sheet wise, Canopy Growth is superior in almost every facet. In about six weeks time, it will have $5 billion-plus cash hoard to play with (TLRY has about C$25 million); brands and international presence are more developed. So is their product portfolio, which contains an A-to-Z list of medical/recreational strains, genetics, future edibles/beverage space presence, production capacity, delivery apparatuses, and incubator ventures through its arm-length involvement in Canopy Rivers. Canopy growth currently generates about 2.5-times more revenue as well, and that margin is roughly projected to remain intact through FY 2021, depending on which analyst you follow.

Obviously, that’s not a slight on Tilray in any regard. It is a superiorly run company with many of its own international and medical portfolio irons in the fire. Tilray’s affiliation with Sandoz Canada Inc.—a division of of global healthcare giant Novartis AG—is among the most coveted in the sector. That backing gives Tilray the type of forward visibility few other cannabis LPs can match. Its ultra-tight share structure—where more that eighty percent of its share structure is currently locked out—has combined with extreme investor optimism to create the ‘perfect storm’ for indiscriminate upside extension.

Tilray Inc. CEO Brendan Kennedy discusses Tilray’s path toward becoming the first cannabis company to IPO on a US Exchange

Still, we can’t help whether the ‘Minsky Moment’ for Tilray has arrived, when investors realize that overtaking Canopy Growth on a MC basis is simply a bridge too far; a valuation threshold too unjustifiable. The market has a tendency to reverse at such comparative catalyzing thresholds.

For example, on Nov. 29, 2013, Bitcoin reached a high of $1,242/BTC on then leading Japanese exchange Mt. Gox. In comparison, gold spot future traded at $1,240/oz at the time, marking the first time BTC/gold had ever traded at parity. Obviously, Tilray and Canopy Growth provide for a more apples-to-apples correlation. But nonetheless, the effect of TLRY’s tight share structure is somewhat mimicking that of Bitcoin’s extreme supply-side fundamentals—especially those which existed before BTC futures began trading on the Chicago Board Options Exchange.

Whether Tilray can keep squeezing higher here is an open question. It’s simply impossible to predict how much selling pressure can be sustained under such conditions, or whether bulls will take their foot off the accelerator. The stock has long since lost touch with valuation reality, so appreciating another $20 or $40/share does little to ameliorate such condition. Obscene valuations alone will not be the catalyst to drives prices lower. Only a buyer’s strike will, triggered by fear the underlying bid can imminently be pulled from beneath it. As we’re stated previously, it’s practically borderline negligent if Tilray doesn’t initiate a capital raise at these levels.

Regardless, Tilray’s monster performance is has been an amazing sight too behold. Belying actual fundamentals—at least for now—Canopy Growth has an equal in the quest for cannabis valuation supremacy. We await the market’s next move.

Update (2:28 pm):

Although Tilray is officially the world’s most valuable cannabis LP by market cap, Constellation Brands Inc. does have 18,876,901 common share warrants at $12.98/share it could convert anytime. Accounting for that sure-fire gain, which have not been exercised to date, Canopy maintains about a $780,000,000 MC advantage at current prices. A breakdown of Constellation’s warrant structure can be found in the table here.

Update #2 (2:51 pm)

Accounting for the in-the-money warrants described above, TLRY topped WEED’s aggregate market cap even after the $1.1 billion present value warrant gain at $58.00/share was accounted for. Canopy has since bounced, and is currently trading at $59.17/share.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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