It’s been a volatile couple of years for shares of Tilray (TLRY). The stock reached $300 in 2018 and last month, it hit $15, a new all-time low. And though the stock has since stabilized, and is currently trading at about $19 per share, I am concerned that we haven’t seen the bottom yet.
In September 2019, TLRY tapped the equity market for $400 million of new funding, which caused significant dilution. As the share count increases, shareholders continue to become more skeptical.
The chart below shows that the short interest in shares of TLRY has increased to an all-time high as of January.
Now there are over 10 million shares short. Over the past 12 months, this has equated to a 165% increase in short interest.
Despite the skyrocketing short interest in the stock, we are also concerned with the amount of cash TLRY is burning through. In the most recent 10-Q filing, TLRY went through $167 million in cash from operations during the first three quarters of 2019. This is an increase of over $100 million, up from $26 million just a year earlier. Capital expenditures were $50 million up from $12 million during the first three quarters of 2018. They also have almost $214 million spent on acquisitions and other ventures.
TLRY used almost half a billion dollars in roughly 9 months. We don’t expect the companies spending habits to continue like this (they can’t afford it) but even if they burn thought between $50-60 million per quarter, that still equates to well over $200 million for this year.
The company ended Q3 2019 with $122 million in cash and investments. If they needed to raise an additional $200 million for this year that would mean an additional 10 million shares would need to be sold resulting in harsh dilution.
On top of all these 2 major red flags, in a recent insider filing on February 18th, it showed that Tilray’s CEO Brendan Kennedy sold 100,000 shares of the company for $16.28. This transaction took place on February 13th and equates to a total of $1.68 million. This follows 4 insider transactions from Brendan Kennedy just a month before in January, when he sold a total of 113,899 shares between January 3rd and January 15th. We did, however, notice that Kennedy exercised his option to purchase 100,000 shares during this time for an average price of $7.76.
What’s worse is that Kennedy has always voiced his confidence in the business during recent conference calls. So for him to sell a large chunk of shares very close to 52-week lows leaves a bad taste in our mouth.
Insider transactions at the end of the day do not dictate the direction of the company but can serve as warning signs for current or potential investors. If the CEO of your favorite company was dumping stock when it’s cheaper than it has ever been, how would you feel about buying more?
For these three reasons, we urge extreme caution when it comes to investing in TLRY.
Tilray Inc. Cl 2 (TLRY) was trading at $19.26 per share on Friday afternoon, up $0.02 (+0.10%). Year-to-date, TLRY has declined N/A%, versus a 25.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron Missere is the CEO and founder of financial media company Departures Capital Inc. He is an avid and experienced investor, with a primary focus on the cannabis industry. In addition to being a featured contributor to StockNews.com and ETFDailyNews.com, he is an author for SmarterAnalyst.com. Aaron also currently hosts a weekly show on YouTube that recaps and explains the movement in the stock market, with a heavy emphasis on marijuana stocks.