The artificially low supply of Tilray shares could normalize at the end of its IPO lockup period
There is a ticking time bomb built into the cannabis stock Tilray Inc NASDAQ: TLRY and it is about to go off. When Tilray launched initial public offering it set what is known as a lockup period. That period is set to expire on January 15, 2019, a day that could bring massive sell-off that could cause the stock to tank.
The purpose of an IPO lockup is to prevent insiders from selling off their shares and causing the price to crash right after a company goes public. However, in many cases, the lockup only delays the inevitable. Tilray’s lockup period was set at 180 days after the stock opened on the Nasdaq on July 19, 2018.
Due to the current balance of Tilray stocks, the end of the company’s lockup period is expected to be particularly problematic. To begin with, Tilray’s stock value has ballooned over 350 percent since it began trading. Few insiders have as much incentive to sell as those in Tilray right now.
Compounding the problem is the high volume of shares which are currently locked. Only around 10 million Tilray shares are currently trading but the company’s outstanding shares is at 76.5 million. The vast majority of Tilray’s outstanding shares, 78 percent, are owned by Privateer Holdings.
If Privateer or any of Tilray’s executives decide to sell off a portion of their shares it could be devastating for the rest of Tilray’s shareholders.
According to some analysts, Tilray’s ticking time bomb is the result of its unsustainable valuation. The artificially low supply of Tilray shares effectively drove the price up.