Tilray Goes Cra Cra

Knowing how to trade around a mania.

I've disclosed a few times here that last December I bought the ETFMG Alternative Harvest ETF (MJ) on the first or second day after it changed from a Latin America real estate ETF. When I first bought there was some excitement and the fund went up a little, then it went down a lot in a slow fashion before starting to rocket higher starting in August which was shortly after the Tilray (TLRY) IPO. TLRY came out of the blocks strongly and in the last few days it has gone parabolic.

In late August I sold 1/3 of my MJ position, it had gone a long way in a short time, it was a pretty fast lift. Then it started to move up at an even faster rate perhaps in conjunction with Tilray being added to the fund and the extent to which that stock went parabolic. This morning I took the following action;

Tilray was up about 50% when I sold. It actually topped out at $300, then crashed as low as around $150 and then rallied up to a close of $214. Here is a snapshot of what happened. Note, it looks like it dropped after hours.

The primary point is to recognize a mania when it is taking place and be prepared to take action of some sort if you have exposure. My preference with this sort of thing is to sell in chunks not all at once. When I sold today I had no idea what was going to come next but the position was up kind of a lot and got there in a manner that is not sustainable. If you have been in markets for a while you have seen this many times and if you've only been in markets a few months you've seen it at least once with the cryptocurrencies. Emotion takes these things up at an astonishing rate and then it ends without warning.

It is a crucial point of understanding to realize that the behavior is Tilray is just like the behavior in just about every other mania you've ever lived through and just like any mania yet to come.

It looks like MJ topped out at $45.40. It would have been great to have sold it higher than I did but that is the wrong way to view it. When something goes parabolic and you own it, that is a gift only if you act on it. By selling the way I did, I benefit if it had sustained the high (it would have been up more and I'd have still had some) and I benefit if it goes down by virtue of having sold some.

I did not buy MJ for clients. It is a very tricky situation because for now marijuana is not federally legal, it is only legal at the state level and even then not every state. Because of this fact there are risks associated with banks being involved with custodying these companies (federal laws) such that for a while there was a risk that US Bank, the custodian of MJ up until this week, could have been forced to pull the plug. My friends at AdvisorShares thought there was a real risk of this happening and certainly many media outlets covered this risk. That risk appears to have been mitigated when Wedbush Securities became the custodian but there are still serious problems that could arise, there was news this week of a threat of a permanent travel ban for Canadians who work in the industry. Regulatory risk is a different animal than execution risk or competition risk or other business risks.

I am convinced that the marijuana/cannabinoid theme is the real thing in terms of the story on the ground but I don't think the typical retiree living off their portfolio needs to take regulatory risk for a group that in baseball terms might still be in infield practice.

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