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Tilray's Reddit Rally Is Over, Analyst Says: 'Large Downside Risk Ahead'

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Tilray's Reddit Rally Is Over, Analyst Says: 'Large Downside Risk Ahead'

Tilray Inc (NASDAQ: TLRY) shares, which have soared over 250% since the start of February, were plunging hard Thursday.

GLJ Research's Gordon Johnson said the sell-off in the cannabis stock is just getting started.

The Tilray Analyst: Johnson reiterated a Sell rating on Tilray with a price target of zero.

The Tilray Thesis: The Herculean, Reddit-drive rise in cannabis stocks, especially in Tilray, is likely over, GLJ's Johnson said in a note.

Additionally, the Reddit army isn't likely to have the same ability to squeeze cannabis stocks as it did with GameStop Corp. (NYSE: GME) and Tesla Inc (NASDAQ: TSLA), given the relatively large float size in cannabis stocks, the analyst said. 
The fundamentals in the cannabis space remain dismal, he said. 

Related Link: How to Buy Tilray (TLRY) Stock

Based on the investment mandate of the ETFMG Alternative Harvest ETF, no single security can comprise more than 10% of the index and 100% of its selling to rebalance happens the day of the rebalancing, Johnson said. 

Assuming Tilray's stock price doesn't decline materially as a percentage of the ETFMG Alternative Harvest ETF when it rebalances in mid-to-late March, as of Thursday, roughly 4 million in Tilray shares would need to be sold by the index operators, the analyst said. 

"We believe the sudden/unexpected spike in TLRY is likely over, with (potentially) large downside risk ahead."

Reddit traders, though a powerful force in driving up stocks, move on when their targets blow up, Johnson said. 

"We feel the flip-side of TLRY's run higher could be a swift move lower."
Given the hefty premium Tilray is paying for its proposed all-stock merger with Aphria Inc (NASDAQ: APHA) at current prices, Johnson said it's less likely that the deal will go through. 

TLRY Price Action: Tilray shares were down 47.9% at $33.30 at last check Thursday. 

Related Link: Cannabis Stock Short Sellers Have $4.3B In Losses So Far In 2021

Latest Ratings for TLRY

DateFirmActionFromTo
Feb 2021BenchmarkDowngradesBuyHold
Feb 2021Piper SandlerDowngradesOverweightNeutral
Feb 2021Cantor FitzgeraldMaintainsNeutral

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