The First Pure-Play Marijuana Company Goes Public In The U.S.
By Roger Malespin photo/istock/p_saranya
History was made on the morning on July 19th when Tilray Inc. became the first pure-play marijuana business to complete an initial public offering on a major U.S. stock exchange. The British Columbia-based company shares began trading on the NASDAQ exchange at $17 and made a substantial jump to $22.55 by the close of the day, a growth of about one third. Tilray is not the first marijuana company to go public on a major U.S. exchange, but it is the first to do so with an initial public offering (IPO).
This follows two other companies going public earlier this year - Chronos Group on the Nasdaq and Canopy growth on the New York Stock Exchange. Both of those companies were already public in Canada. Later this year, Canada will become the first major industrialized nation to legalize production and use of marijuana.
The significance of this is that an IPO can boost investor confidence in cannabis as a viable stock option, much more so than the two others who did not have an IPO. In an IPO, banks establish the market clearing price for an IPO based on an aggregate of institutional investor indications of the price they would pay for an equity allocation of the pre-IPO company.
For a company, the capital earned from selling its shares to the public act can act as a major boost the the business' growth. Although the underwriting investment bank does not owe shareholders anything they might lose, the true risk is taken by the underwriters themselves. The nature of an IPO as an unproven stock and the fact that cannabis is still new to the legal market makes it an uncertain investment at best.
The IPO "signifies tremendous validation for Tilray as a company, but really for the entire sector," Tilray Chief Executive Brendan Kennedy said in a phone interview Thursday. "It gives us access to large pools of capital, capital that feeds the global paradigm shift taking place." The company says it will use the investment money to build additional manufacturing in Ontario.
Before anyone jumps at the chance to buy some stock in Tilray or the other companies that have gone public, many financial analysts are urging caution.
"Right now a lot of investment has been highly speculative. Those valuations feel a little supercharged," "We expect some kind of correction in the near future."said John Kagia, an analyst with the marijuana market research firm New Frontier Data.
Even if stocks and investments aren’t your strong suit, this event is still significant for the legalization movement.
"Every success means future success for the industry. Every successful investment, every successful individual and every successful company brings us closer to legalization," said Patrick Rea, the co-founder of CanopyBoulder, a firm that gives financial backing and advice to startups in the industry.
We strongly recommend speaking to a financial expert or investment specialist before making any purchases of cannabis stock. An August ‘megaboom’ is expected for the industry but many analysts have stated that the future beyond that is uncertain for viability of cannabis stock in a U.S. market.