Why Tilray Brands Stock Just Stubbed Out

Tilray Brands (TLRY -15.95%), the Canadian marijuana stock, saw a remarkable 22% increase in its stock price yesterday after announcing a surprising profit for fiscal Q1. While this news is certainly positive, it comes with a twist.

Immediately following the earnings report, Tilray wasted no time in capitalizing on its boosted stock price. As momentum investors flocked to the stock, Tilray announced a new stock offering, putting millions of new shares into circulation.

In short, Tilray is making a cash grab, and the market’s reaction has been less than favorable. As of 11:25 a.m. today, Tilray’s stock has dropped by 14.7%.

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Earnings and Offerings

Analysts had anticipated a loss for Tilray, but the company surprised everyone by reporting a small profit of $1.5 million. Although this rounded down to just $0.00 per share, it was still a positive $0.00.

Recognizing that this good news would attract investors, Tilray quickly announced, via an SEC filing, its plan to sell “from time to time” enough shares to raise $51.6 million. At the current share price, this could lead to as many as 28.7 million new shares entering the market.

Additionally, Tilray mentioned the potential issuance of up to 3,133 shares “upon exercise of certain outstanding warrants.” Furthermore, one of its shareholders may be looking to sell 8.6 million shares of Tilray.

Is Tilray Stock a Sell?

Let’s break down these announcements.

The addition of 28.7 million shares to the existing 149.3 million shares outstanding could dilute existing shareholders by approximately 19%. This dilution, coupled with the influx of new shares, is likely to depress Tilray’s stock price. The selling shareholder’s intention to offload 8.6 million shares will further exacerbate this situation.

Given these developments, Tilray investors have valid reasons to be upset. What started as good news has quickly turned into a cause for concern.