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Tilray Inc. and Cronos Group Inc. shares catapulted to double-digit percentage gains Monday, as a recent surge from marijuana-related companies extended for another session.
A report that Smirnoff- and Johnnie Walker-maker Diageo PLC DEO, +0.35% was in talks with at least three Canadian pot companies with the intent to purchase a stake or initiate a collaboration in one of them seemed to set off the buying frenzy Friday, and Monday’s trading saw Tilray Inc. TLRY, +21.84% gain more than 20% to $53.44, and Cronos Group Inc. CRON, +21.13% stock rose 21%. Aurora Cannabis ACB, +7.68% a Canada-based pot producer that doesn’t have a U.S. exchange listing, saw shares close 7.7% higher Monday.
Tilray went public at $17 in July, and Cronos listed on the Nasdaq exchange earlier this year and has rallied more than 50% year to date. The benchmark S&P 500 index SPX, +0.77% has gained 8.4% this year.
“This is like bitcoin BTCUSD, +0.56% levels, the kind of move Tilray is making,” said Jason Spatafora, a cannabis investor who runs Marijuanastocks.com. “The market is completely irrational. [Tilray’s] market capitalization is over $4.5 billion. That’s insane. They don’t have as much cash as Canopy or Aurora. It shouldn’t trade at half that valuation.”
Also Monday, the Canadian province of Nova Scotia — population 950,000 — announced its first legal pot order of 3.75 million grams and indicated that it expects to buy 15 million grams over the next year. The order, through the government-owned liquor corporation, included companies such as Cronos and Tilray, among others. According to Nova Scotia Liquor Corporation estimates, cannabis will add roughly $87 million to its top line in fiscal 2018-’19. Recreational marijuana will become legal in Canada starting Oct. 17. In the U.S., it is still illegal under federal law.
The report of a potential Diageo deal involving an investment or partnership in a Canadian pot firm arrived amid a wave of interest from the alcohol sector. Earlier this month, Constellation Brands Inc. STZ, +1.28% signed a deal with Canopy Growth Corp. CGC, +2.93% that included a $4 billion investment in the company. Canopy is traded in the U.S. and the stock was up 2.9% Monday.
The Canopy-Constellation deal signaled for many that the sorts of billion-dollar agreements that Canadian weed companies have been pursuing are very much a possibility, as the alcohol industry seeks to reinvent itself in the face of declining beer sales.
“If you’re the CEO of an alcohol and beverage company, and if you go a shareholders meeting or a staff meeting, I guarantee the first question you get is going to be: ‘What is our cannabis strategy?’” Canopy Chief Executive Bruce Linton said in a telephone interview last week. “I think the world has changed dramatically and it’s changed because of Constellation and Canopy.”