This cannabis stock is a new Reddit favorite

By Paul R. La Monica, CNN Business

Cannabis company Tilray, which recently merged with rival Aphria, has seen its stock surge as of late thanks to — you guessed it — love from the Reddit crowd.

As backers tout the growing number of states legalizing recreational and medical marijuana, some investors are holding out for the dream scenario of federal legalization — even though that might be a stretch in the near term.

But are investors going a little crazy? Tilray is now up more than 130% this year. That’s much higher than the gains for rivals Canopy Growth and Cronos, which have the backing of consumer products giants Constellation Brands and Altria, respectively.

Short-sellers are targeting Tilray. And Redditors have gleefully tried to squeeze the shorts — investors who borrow stocks and sell them with hopes of buying them back at a lower price.

If a stock suddenly starts to rise, short-sellers have no choice but to buy it back or face prohibitively large losses. That’s a big reason behind the recent spikes in AMC, GameStop and other stocks that the Reddit community has glommed onto this year.

One Reddit user wrote in a post last week that Tilray “is a movement,” adding that the company has “fantastic stats” and is “a worthy opponent to AMC” as a meme stock.

The short-sellers have seemingly taken control in this battle lately though. After a 6% pop in Tilray’s stock last Wednesday, share prices have fallen for the past three trading days.

But some backers aren’t deterred by the recent pullback. One Redditor on the site’s Tilray board wrote the following message to any would be short sellers: “Weed Stocks to Bears: I’m not leaving.”

The post, which also mentioned cannabis stocks Aurora and Sundial Growers, showed a clip of Leonardo DiCaprio’s inspirational speech to employes from “The Wolf of Wall Street” in which his Jordan Belfort character exclaimed he wasn’t going anywhere.

The Reddit community also seems to appreciate that Tilray CEO Irwin Simon is acknowledging their support. In an interview with CNBC last week, Simon said “we love having them as part of our shareholder base” in response to a question about the retail investor interest in the stock.

One commenter referred to Simon last week as a “diamond” — the ultimate Reddit compliment.

“[He] wants to build a global green giant. This dude wants to take us to tendie town gentleman,” the poster said, using the Reddit lingo “tendie” to describe trading profits.

“This company has a shot to literally rocket to the top as a fundamental and strong global brand,” the Reddit user added.

Still, Tilray’s faithful may have a tough time convincing the Wall Street establishment that this is a stock worth owning.

Analysts who cover the stock are lukewarm on its prospects. Only four have a buy rating on Tilray, compared with 13 holds and one sell. What’s more, the consensus target price is about $19 — right around where the stock is currently trading.