Top stocks will crash soon

Uh-oh! Insiders of this pot stock are selling again

The marijuana industry is a fast-paced industry where if you turn your back for a moment, you could be without the next announcement, merger, or partnership. With annual worldwide sales of perhaps $ 50 billion to $ 75 billion over the next decade, it's no surprise that we expect a lot of buzz from investors about the pot industry.

However, it's also important to note that while there will be perfectly successful investments in marijuana stocks, there will also be a fair proportion of losers who fail to take their chances. The Canadian breeder Tilray is such a pot supply that at this point in time is not a Represents obstacle

(NASDAQ: TLRY)

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After Tilray's IPO in mid-July, the share could hardly be stopped. With around 90% of its outstanding shares inaccessible due to the 180-day vesting period that expires on January 15, 2019, the company's low float has triggered a rally that pushed its share price up from a list price of $ 17 an intraday high of $ 300 in less than two months. For a brief moment, Tilray was worth Canopy Growth more than doubled and stood in proven business models like Hershey and American Airlines Group .

However, Tilray has fallen back to Earth since its peak in mid-September. Aside from a small handful of positives, like starting a $ 100 million joint venture with Anheuser-Busch InBev and the expansion of a global medical cannabis product distribution agreement with the Novartis -Generika-Drug subsidiary Sandoz, this was popular top stocks for one of the biggest downturns.

Tilray's house of cards crashes

Arguably one of the biggest problems for Tilray is that it lacks the production necessary to be a major player. It ended 2018 with around 850,000 square meters of built-up area in Canada and 250,000 square meters in European building construction. However, this can only be good enough for around 100,000 kilograms of peak annual yield, which isn't even a guarantee that Tilray is a top 10 producer among Canadian growers. Without sufficient capacity, Tilray may need to purchase cannabis from licensed manufacturers, reducing its gross margin.

Speaking of margins, the bottom line of the company is another problem. With Tilray not producing much cannabis right now, and its annual peak performance nothing special for a company with a $ 5.5 billion market cap, losses are likely for 2019 and 2020. Essentially, Tilray is at the bottom of the field among growers for projected profitability.

This is also a company that is completely changing its strategy. Tilray worked in the Canadian space and had fourth quarter operating income and a conference call with analysts.

Downplaying the company's path in Canada, CEO Brendan Kennedy, noting that most of its domestic assets are overpriced, instead announced the company's new focus on the US hemp market and the medical marijuana industry in Europe. While these are potentially bigger markets than the Canadian weed industry - especially if the US legalizes cannabis at the federal level and Tilray already has hemp processing infrastructure in place - a significant shift in business strategy that will add even more question marks to bottom line.

Now we can add one more concern: insider selling.

Tilray's top executives called again

For those who may not remember, Tilray's insiders sold their shares shortly after the lock-up period ended. On January 24, 2019, we learned that CEO Brendan Kennedy sold nearly 150,000 shares and Chief Revenue Officer Woody Pastroius sold nearly 20,600 shares, for a total of $ 12.6 million between the two insiders.

There was nothing wrong with this sale, of course. Rather, the sale was tied to restricted stock units that Kennedy and Pastorius had transferred and sold on their behalf to cover IRS withholding taxes. In general, executives selling some of their inventory to cover their tax bills are not uncommon in terms of tax time.

However, the beginning of the second quarter brought a new round of sales for Kennedy and Pastorius. According to filings recently filed with the Securities and Exchange Commission, Kennedy sold just over 106,100 shares of Tilray on April 1 and 2 at an average price of $ 63.44 for total proceeds of $ 6.7 million. Meanwhile, on April 1 and April 2, Pastorius sold just over 46,500 shares for about $ 3 million.

According to the notifications, these sales were made under 10b5-1 trading plans that automatically execute purchases and sales when certain conditions (volume or price) are met. In other words, these sales are not necessarily a vote of no confidence by Kennedy and Pastorius, but rather certain predetermined factors.

Even so, these are two separate sales events over a period of 2.5 months.

Equally worrying is the fact that private equity firm Privateer Holdings owns nearly 80% of Tilray's common stock. Ordinarily, such a large shareholder would be a good thing. It only seems logical, however, that Privateer is looking to capture some of his post-market gains in the second half of this year. How Privateer will reduce his stake in Tilray without completely crushing the company's share price is an answer I don't have.

In sum, from an investment perspective, Tilray is becoming less and less attractive every day.