On Tuesday, Tilray (NASDAQ:TLRY) announced a deal with Grow Pharma to import and distribute medical cannabis products in the U.K. TLRY stock immediately leaped 40% as investors rushed in.

But something seems off. The U.K. medical marijuana market is minuscule; doctors wrote fewer than 350 prescriptions in the 19 months through Feb 2020. And though growth in the recreational/illicit market remains swift, medical licensing remains a stagnant area.

That means something else is driving Tilray’s $2 billion valuation gains: Reddit bulls anticipating U.S. federal cannabis legalization. In other words, don’t bet against Tilray – with enough momentum, an army of Reddit users can quickly turn TLRY into the next GameStop (NYSE:GME). And this time, they may have a great reason as well.

TLRY Stock: The Next GameStop?

Even before its latest run, Tilray’s fortunes had been looking up. After a long hiatus, the Democrat-led Senate has finally put federal cannabis legalization back on the agenda. And with the prospect of the $78 billion U.S. marijuana market opening later this year, Canadian cannabis companies seem primed to jump in.

These changes will especially help Tilray. As a low-cost cannabis producer, the company is more sensitive to marijuana demand than its retail-focused peers. That’s because when a firm generates just 7% gross margins, even a tiny increase in sale price will send profits skyrocketing.

Short sellers, however, haven’t seemed impressed. Since January last year, short interest in TLRY stock has risen from 7.6 million shares to over 34 million. And with just 111 million shares freely floated, it’s 30% short interest is second only to GameStop among the popular Robinhood stocks.

All this creates a potentially explosive mix – a downtrodden company that’s still over 90% below its all-time high, strapped to a Reddit rocket ship.

Not Tilray’s First Short Squeeze

It’s not the first time Tilray has seen a short squeeze. In 2018, the Canadian cannabis company saw its shares shoot from $24 to over $300 as cannabis bulls hijacked the stock over dreams of pot legalization. Shares would later tumble to under $5 as a Republican-controlled Congress shelved marijuana reform.

But this time looks different. Unlike in 2018, today’s Democrat-led Senate looks far better positioned to pass bipartisan legalization bills. In January, Senate majority leader Chuck Schumer committed to ending federal cannabis prohibition by the end of 2021. Tilray’s stock also has far higher short interest now than back in 2018. Though official figures point to a 30% short interest rate today, the number jumps to 50% once investors remove shares owned by long-term holders such as the Canada Pension Plan Investment Board.

Most importantly, Tilray now has a broader following within the Reddit investment crowd. It’s far from the healthiest Canadian cannabis company. But in a world where individual investors can start a stampede, near-term fundamentals might not matter.

What’s TLRY Stock Worth?

This time, however, Reddit investors might have a point. Americans spend almost as much on marijuana as they do on tobacco. And given the combined $200 billion market cap of U.S. Big Tobacco, Tilray’s current $5 billion market cap looks tiny by comparison.

A sober look through a discounted cash flow (DCF) model also shows reasons for optimism. If Tilray grows revenues to just $4 billion by 2029 (a tiny fraction of the $200 billion estimated market size) and earns 56% Big-Tobacco EBITDA margins, its fair value comes to $70 per share. Of course, that’s assuming that the company can transition from a low-cost pot grower to a high-margin marketer.

But none of that might matter in the short run. When any piece of good news sends Tilray stock soaring, it’s a sign of buyer/seller imbalance – a key ingredient to a short squeeze. In other words, Reddit users won’t have to do much to start a mass buying spree.

Risks for Tilray Investors

There are risks, of course. Reddit’s adoration can quickly turn to indifference as new hot stocks come on the radar. And retail-oriented pot companies like Canopy Growth (NASDAQ:CGC) and Cronos Group (NASDAQ:CRON) with higher-value products are far better equipped to steal the “next Big Tobacco” crown; Tilray could end up as a low-margin agriculture firm that goes nowhere.

But don’t let the details get in the way of a raging bull stock. Though Canopy and Cronos could become the next $50 billion companies, there’s little stopping Tilray from independently reaching a $20 billion valuation in the meantime — a $150/share price. And don’t expect Tilray’s CEO Brendan Kennedy to watch this opportunity to pass by either. Having lived through one short squeeze already, Mr. Kennedy will undoubtedly make the most of a second one to raise cash for marketing.

It might not be the most logical bet, but buckle up anyway. Reddit could easily send Tilray to the moon once again.

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