Tilray Inc (NASDAQ:TLRY) Pre-Lockup Expiry Surge Wrecks Short Sellers

Benjamin A. Smith
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After churning within a consolidatory channel for almost three weeks, Tilray Inc (NASDAQ:TLRY) delivered short sellers a fierce blow yesterday. The move caught many would-be profiteers off guard, as buyers pushed prices ever higher towards the close. We explore further.

The event we’re talking about is Tilray’s upcoming IPO lockup expiration on January 15th, in which approximately 80 million shares will become free-trading. Bearish investors (stocks, options), smelling opportunity, have been positioning themselves for weak price action in recent days. Latest Wall St. Journal data shows net shorts increased ↑3.4% to 3,529,615 in the latest reporting period, with around 20% of the public float shorted. Bearish retail sentiment has been noticeably palpable.

The problem is, Mr. Market is lambasting short sellers again—at a most unexpected and inopportune time. Unlike the persistent free-fall experienced by Aurora Cannabis post-MedReleaf acquisition last summer, where 330 free trading shares would come online 2.5 months later; or Green Organic Dutchman Holdings ~100M share unlock last November, Tilray is showing relative strength heading towards the finish line.

Throw out all the alphabet soup indicators on this chart—they won’t tell you much. The unsettling aspect for shorts—from a bearish perspective—is that price wasn’t contained at the channel highs (unlike December, orange). TLRY maintained its morning gap-up while peers sold-off, marching unrelentingly higher throughout the afternoon once the sector found its footing. This puts shorts in a tough predicament, as channel highs gave way on surging volume.

With Tilray squeezing higher $11.36 to $38.26/share (↑15.80%) on a day of net sector neutrality (weak morning session), we wonder whether this rally is a 1-day affair. Although it’s been awhile, Tilray has a sordid history of torching shorts, as Citron Research and others can attest.

Between 08/14/18 and 09/17/18, TLRY soared ↑1237.11% on a peak-to-trough basis—at one point becoming the most expensive LP on the planet (close to $30B market cap). This, despite balance sheet assets and revenues which severely trail the likes of Canopy Growth and Aurora Cannabis. Great company, great future—but severely overvalued by any sane metric.

The rally was generally believed to be caused by minuscule supply combining with overly-aggressive shorts to create the perfect conditions for predatory algos to dismember its victims. The squeeze was truly reminiscent on the dot.com days, both in voracity and feel. I can’t recall any stock bulldozing the ask in such a surgically precise manner since—over such a short period of time.

Thus, the big question heading into Wednesday is whether TLRY can maneuver another spectacular short squeeze when people least expect. In the after hours session, Tilray was off ↓1.87% to $81.70/share, pointing to a lower open. But things can change quickly, and Midas Letter will be watching with interest whether any morning weakness reverses quickly, rendering further gains as panicky shorts jump ship.

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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