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Tilray's Tuesday Slide Due to IPO Lockup Expiration

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With a strong rally off of its December lows, Canadian Marijuana producer Tilray (TLRY - Free Report) has significantly outperformed the broad markets lately, closing Monday at $100.15 – more than 50% higher than just a month ago.

Marijuana stocks in general are back in style after a meteoric rise during most of 2018, followed by big pullbacks at the end of the year.

Tuesday was a different story for TLRY however, with shares down 17% during a session when the equity markets were broadly higher.

Is there a problem?

In a word, no.

In fact, this move was actually expected, and paradoxically, many consider the decline a bullish development.

Tuesday’s selloff seems mostly to be the result of the expiration of the post IPO “lockup” period during which insiders were prohibited from selling their shares. As of the last filing period, roughly 76% of Tilray shares were held by private equity firm Privateer Holdings and an additional 11% were held by other insiders.

It’s common for shares of almost any company to decline somewhat when the lockup expires as insiders – who might include company employees as well as underwriters who took some compensation in the form of company shares – sell some of their holdings to lock in profits and/or pay taxes. Unlike other forms of insider selling, it doesn’t necessarily mean there’s anything wrong with the company.

Investors and traders knew the TLRY lockup was about to expire and had anticipated selling pressure on the shares, but then last Friday, Privateer announced that they had no plans to sell any shares during the first two quarters of 2019.     

The news led to a short-squeeze rally as the markets digested the reality that more than ¾ of outstanding shares would not be available for purchase for almost 6 months.  The shares traded up sharply, gaining nearly 20% on Friday alone and picking up 4% more on Monday.  As we headed into the expiration of the lockup on Tuesday, TLRY had rallied from $80.40/share at the close on Thursday to $100.15/share.

Tuesday’s selling action didn’t even take the stock down to the Thursday close. This would suggest that only a portion of the selling was the other (non-Privateer) insiders and was probably a combination of other longs and some new short sales.

The handful of Marijuana stocks available for trading on US exchanges – including Canopy Growth (CGC - Free Report) , Cronos Group (CRON - Free Report) , Aurora , Aphria and of course, Tilray – have been extremely volatile as the investing public sorts out financial information, positive and negative rumors, and the rapid pace of deal making happening in the industry.

Tilray’s wild ride the past few trading sessions is merely a symptom of the growing-pains induced volatility and nothing more.

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