Tilray’s agreement with Grow Pharma to import and distribute medical cannabis products in the United Kingdom is just the latest example of how investors are embracing pot stocks.
The news sent Tilray (ticker: TLRY) shares soaring 35% in Tuesday morning trading, setting another 52-week high. Shares are up 40.5% in afternoon trading to $42.37.
Rival marijuana company Canopy Growth (CGC) jumped 8.5% on Tuesday even though it reported a bigger-than-expected quarterly loss of $2.43 a share, compared with the expected loss of 32 cents, according to FactSet.
On the positive side, Canopy’s revenue of $152 million in the fiscal third quarter beat expectations, and the company said it was on track to be profitable in 2022. Shares also reached a 52-week high on Tuesday.
The whole pot sector is rising in hopes for broader legalization in the U.S., with friendlier faces in Congress. The ETFMG Alternative Harvest exchange-traded fund (MJ) is up 11%. The Cannabis ETF (THCX) is up 13% and has doubled so far this year.
The Global X Cannabis ETF (POTX) is up 17.4% on Tuesday and 144% so far this year, compared with a 4% year-to-date gain in the S&P.
Democrats now control both houses of Congress, even with razor-thin margins. Last week, Senate Majority Leader Chuck Schumer, along with Democratic Senators Cory Booker of New Jersey and Ron Wyden of Oregon said they will advance “comprehensive cannabis reform legislation.”
“In the early part of this year, we will release a unified discussion draft on comprehensive reform to ensure restorative justice, protect public health and implement responsible taxes and regulations,” they said in a statement.
Other politicians have indicated a willingness to address the subject of broader legalization. It’s an agenda item for New York Gov. Andrew Cuomo, who announced a proposal to legalize and regulate cannabis in his state of the state speech last month.
New York estimates legalization will generate tax revenue of $300 million. (Cuomo is trying to close a budget deficit of nearly $15 billion).
Earlier this week, Virginia legislators in both houses approved a bill to legalize and regulate pot sales for those 21 and over. If the governor there signs it into law, it would join Illinois and Vermont as states to legislate the issue. Thirteen other states have legalized it through voter initiatives, according to the Marijuana Policy Project.
But cannabis company shares are also getting attention for their potential to be involved in deal activity. Canopy got a new CEO in December 2019, which led to speculation Constellation Brands (STZ) would seek to buy the 65% of Canopy it doesn’t already own. That is because the new CEO, David Klein, is a former executive of the U.S. spirits company.
Tilray’s agreement with Grow Pharma will give it a platform for further expansion into Europe’s medical marijuana market.
Sascha Mielcarek, Tilray’s managing director in Europe, said in a statement: “As demand continues to ramp up in the U.K., Tilray is well-positioned to be a leading supplier of medical cannabis products. Regulations are progressing as more and more countries across Europe are recognizing the benefits of medical cannabis and its potential to improve patients’ quality of life.”
Aphria (APHA) is up 19%. In December, the company announced a plan to merge with Tilray in a $685 million deal to create the world’s largest cannabis company.
Both companies are based in Canada and have “first mover” advantage when it comes to expanding market opportunities in overseas markets, according to Cantor Fitzgerald analyst Pablo Zuanic, who recently raised the price target for Aphria, keeping a Buy rating.
Write to Liz Moyer at Liz.Moyer@barrons.com