Why Tilray Stock Dived by 10% This Week
Key Points
It effected a reverse stock split at the start of the period, a move that rarely wins investor hearts.
That said, the 1-for-10 ratio ensured compliance with Nasdaq listing requirements.
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Over the past five days, the struggling marijuana industry was perfectly exemplified by Tilray Brands (NASDAQ: TLRY). A major financial engineering effort by the company kicked in on Monday, and it dragged the stock down over the subsequent trading sessions. This was reinforced by a price target cut from an analyst.
According to data compiled by S&P Global Market Intelligence, Tilray's stock tumbled by almost 10% over the course of the week.
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Reversal of fortune
More than seven months after announcing a reverse stock split, Tilray finally pulled the lever on it Monday, at a ratio of 1-for-10.
Image source: Getty Images.
Investors typically don't take kindly to reverse stock splits, as they are often -- as in Tilray's case -- at least partially enacted to comply with stock exchange minimum share price requirements. Even though the company announced the measure all the way back in April, it hasn't been an easy swallow for shareholders.
That price target cut, meanwhile, was made by TD Cowen's Robert Moskow, who lowered his fair value assessment to $10 from his previous $25 (the prices were adjusted to account for the split). Despite the significant adjustment, Moskow maintained his buy recommendation on Tilray stock.
According to reports, Moskow's revision is due to Tilray's competition in its original market of Canada. There are many rivals in that country, which has a much smaller population than the U.S., all of which are jostling for success. Another factor behind the analyst's move is the company's increasing involvement in the craft beer segment, which is also a challenging market to succeed in.
Teetotal nation
I think Tilray should be commended for its attempt to diversify into specialty beer; however, the consumption of alcoholic beverages (at least among Americans) has recently dropped to a level not seen in decades. The great hope for Tilray and other pot companies is de facto legalization in the immense U.S. market, but at this point, it doesn't look like that's going to happen anytime soon.
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Eric Volkman 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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