Tilray's Reddit Rally Is Over, Analyst Says: 'Large Downside Risk Ahead'

Tilray Inc TLRY shares, which have soared over 250% since the start of February, were plunging hard Thursday.

GLJ Research's Gordon Johnson said the sell-off in the cannabis stock is just getting started.

The Tilray Analyst: Johnson reiterated a Sell rating on Tilray with a price target of zero.

The Tilray Thesis: The Herculean, Reddit-drive rise in cannabis stocks, especially in Tilray, is likely over, GLJ's Johnson said in a note.

Additionally, the Reddit army isn't likely to have the same ability to squeeze cannabis stocks as it did with GameStop Corp. GME and Tesla Inc TSLA, given the relatively large float size in cannabis stocks, the analyst said. 
The fundamentals in the cannabis space remain dismal, he said. 

Related Link: How to Buy Tilray (TLRY) Stock

Based on the investment mandate of the ETFMG Alternative Harvest ETF, no single security can comprise more than 10% of the index and 100% of its selling to rebalance happens the day of the rebalancing, Johnson said. 

Assuming Tilray's stock price doesn't decline materially as a percentage of the ETFMG Alternative Harvest ETF when it rebalances in mid-to-late March, as of Thursday, roughly 4 million in Tilray shares would need to be sold by the index operators, the analyst said. 

"We believe the sudden/unexpected spike in TLRY is likely over, with (potentially) large downside risk ahead."

Reddit traders, though a powerful force in driving up stocks, move on when their targets blow up, Johnson said. 

"We feel the flip-side of TLRY's run higher could be a swift move lower."
Given the hefty premium Tilray is paying for its proposed all-stock merger with Aphria Inc APHA at current prices, Johnson said it's less likely that the deal will go through. 

TLRY Price Action: Tilray shares were down 47.9% at $33.30 at last check Thursday. 

Related Link: Cannabis Stock Short Sellers Have $4.3B In Losses So Far In 2021