Why Tilray Brands Stock Just Stubbed Out
Key Points
Tilray reported a surprise profit yesterday.
The share price went up -- and Tilray cashed in by announcing a big share sale.
37.3 million Tilray shares could soon flood onto the market.
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Tilray Brands (NASDAQ: TLRY), the Canadian marijuana stock, closed 22% higher yesterday after reporting a surprise profit for fiscal Q1. That's the good news.
The bad news is that Tilray wasted no time capitalizing on its new and improved stock price. No sooner had it reported earnings, and booked the price gains from momentum investors rushing into the stock, than Tilray put millions of new shares in play with a new stock offering.
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Long story short, Tilray is making a cash grab, and investors are not happy about it. Tilray stock is down 14.7% through 11:25 a.m. today.
Image source: Getty Images.
Earnings and offerings
Analysts expected Tilray to lose money yesterday, but the company reported a small surprise profit of $1.5 million instead. (The number rounded down to just $0.00 per share -- but it was a positive $0.00.)
Anticipating the good news would attract investors, Tilray then turned around and announced, in an SEC filing, that it plans to sell "from time to time" enough shares to raise $51.6 million. At today's share price, that could mean as many as 28.7 million new shares flooding onto the market.
Tilray also noted it may issue up to 3,133 shares "upon exercise of certain outstanding warrants."
Last but not least, Tilray noted that one of its shareholders may want to sell 8.6 million shares of Tilray.
Is Tilray stock a sell?
Let's take those announcements one at a time.
28.7 million shares, added to its 149.3 million shares outstanding, means Tilray may soon dilute existing shareholders by 19%. Adding financial insult to ownership-stake injury, selling so many shares will probably depress Tilray's stock price. So too will the selling shareholder unloading 8.6 million more shares.
Tilray investors are right to be upset. Tilray just turned good news into bad news.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
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