Weed Stock Takes A Hit After Downgrade

Shorts have piled on the cannabis stock

Tilray Inc (NASDAQ:TLRY) is 2.2% lower in electronic trading, after Eight Capital downgraded the cannabis stock to "neutral" from "buy," expressing concern over the company's valuation. While the brokerage firm did boost its price target to $70 from $32, this still stands at a sharp discount to last night's close at $136.80.

The cannabis stock craze has taken Wall Street by storm in the past two months, and Tilray stock has been a big part of that, ballooning up to $300 on Sept. 19, compared to its July 18 initial public offering (IPO) price of $17 per share. The shares have shed more than half their value since those September highs to trade just above their newly formed 30-day moving average.

But there is some underlying skepticism surrounding the weed stock. Short interest has more than doubled since the Aug. 15 reporting period to 3.64 million shares. In addition, two of the three analysts covering Tilray rate it a tepid "hold," while the average 12-month price target of $102 is a 25.4% discount to last night's close.

In the options pits, the October 50 put is home to peak open interest, and data from Trade-Alert points to a mixture of buy-to-open and sell-to-open activity at this deep out-of-the-money strike. The October 150 call has also been popular, where it looks like mostly buy-to-open activity. Both of these front-month options expire at the close next Friday, Oct. 19 -- two days after Canada legalizes recreational weed.