In the first article of a special two part series, Bruce Linton talks all things pot and explains why Tilray’s recent stock activity is “one of the world’s most costly games of hot potato ever”.
WP: Canopy has been part of a group of Canadian marijuana companies that has seen an explosion in their share prices this year. What’s it been like to be on that ride?
Bruce Linton: I have an index. I track how many people in the company have become millionaires who would not have otherwise have done so. It’s getting to be quite a substantial list.
There has been a sequence of [share price] explosions occurring since 2014. If you weren’t creating something good in 2013 and 2014, but you have been valued very highly in the last year, I suspect in the next year you will be valued very lowly. That is because right now the stock market is voting: saying yes, I vote for weed. In about a year they will quit voting for weed and will start weighing: saying I vote for margin and results.
WP: Canopy has what appears to be a sustainable business model. What is your view on what might happen to some of the smaller producers?
BL: They are going to disintegrate. If you are small and you make great product, you will be fine. But if you are medium-sized and trying to act big with a fat management team, a big overhead and no offtake agreements with the provinces, you are going to build inventory to the point you are ready to die. We might buy your inventory at a discounted rate, and then you will die.
Small excellence will win and large scale that can support science, research, branding and development of global markets will win. The guys that aren’t either of those are toast. We are not going to buy them; it’s called disintegration of capital value.
WP: The Tilray stock has been on a rollercoaster in recent weeks. What’s your view on that?
BL: The way the capital markets are, supply-demand is supposed to drive price. But, if you look at the total amount of shares they issued, it’s almost none. Suppose there are only 2 million shares trading each day, but it looks like there have been 20 million shares traded, that means each share changes hands 10 times a day. That starts to get pretty crazy. The very small float has been a really weird accelerator.
Then, you have a bunch of people who had original shares that were going to be escrow; they weren’t going to be allowed to sell them. So, they tried to make an instrument where they basically short the stock and then sell the option. What happened is a bunch of those didn’t catch on the way they were supposed to and the stock ratcheted, so these guys had to keep buying.
There are a couple of them you will read about in the news in the next week or two that had to be $200 or $300 million on the wrong side of doing that.
So, it actually has nothing to do with what the company does, but the fact it has no stock float and a bunch of people levered things, which completely blew up in their face. When that starts happening you have to chase it, so it is probably one of the world’s most costly games of hot potato ever.
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