What happened

Shares of Tilray (NASDAQ:TLRY) were jumping 18.2% higher as of 3:40 p.m. EDT on Friday. The Canadian cannabis producer didn’t report any news, so why did the stock deliver such a nice gain? Probably because of two factors. The overall stock market rose as investors’ optimism increased about the prospects of a swift economic recovery. Tilray’s short percentage of float is also sky high. Any good news can cause short-sellers to cover their positions, contributing to upward buying pressure for the stock.

So what

Investor sentiment and short-sellers’ gyrations for one day really don’t matter in the big picture. What does matter are Tilray’s business prospects. And they remain a mixed bag for now.

Cannabis plants with a stock chart going up and a green arrow pointing up

Image source: Getty Images.

Over the short run, Tilray seems likely to continue to experience some significant challenges. It could take a while for the retail cannabis market to rebound after being impacted by the COVID-19 outbreak. Tilray is still losing a lot of money, with the company posting a 219.1 million loss in its fourth quarter. Until it achieves profitability, the company will constantly have to be thinking about raising additional capital.

The picture could be better for Tilray over the longer run. There’s a significant opportunity in the Canadian adult-use recreational marijuana market, especially as the cannabis derivatives market picks up momentum. Tilray would also benefit if the U.S. Food and Drug Administration finalizes regulations to allow the sale of CBD food supplements.

Now what

Marijuana stocks are likely to remain highly volatile for the immediate future. Tilray will probably be more volatile than most because of the number of shares sold short combined with its low float. Today’s big jump could easily be followed by sharp declines next week.