Tilray is beaten down, but that alone doesn’t make it cheap.
There’s one word to describe the performance of the cannabis industry during the past five years: catastrophic. Investors’ expectations were high at the end of the last decade as several positive legal developments affected the sector, but it has been a major disappointment. Could that change soon?
If it does, one of the companies to profit might be Tilray Brands (TLRY -1.26%). Although the company’s performance has also disappointed, it remains one of the industry’s undisputed leaders. So should investors consider purchasing shares of Tilray?
Could legal progress jolt the stock?
Things haven’t been stagnant in the cannabis industry despite its terrible overall performance. In February, Germany legalized recreational use for adults under specific strict regulations.
Tilray already has a leading market share in the country. It estimates that there’s a $3 billion opportunity in the German medical cannabis market alone. The company hopes the progress in Germany might spill over to other European countries, where it sees a $45 billion medical cannabis opportunity.
Tilray’s revenue grew during the trailing-12-month period to about $812 million. If the company’s projections prove accurate and European countries move in that direction, it could be a game changer.
TLRY Revenue (TTM) data by YCharts.
The pot grower is also hoping for similar progress in the U.S. With a presidential election quickly approaching, one of the candidates, Kamala Harris, has endorsed the legalization of recreational use of the substance at the federal level. Even if she gets elected, though, (and no one knows at this point if she will), legalization might not happen immediately, if at all. But things are looking up on the regulatory front.
The U.S. market could be particularly lucrative for the company. Tilray is one of the largest craft brewers in the country, thanks to a series of acquisitions. It could use its position to get ahead in the market for cannabis-infused drinks, provided cannabis is legalized nationwide.
It’s going to be a long shot
To a considerable extent, Tilray’s future relies on a lot of help from lawmakers. Even if regulators all over the world suddenly decide to make marijuana legal, there’s no guarantee the company will be successful. Some of Tilray’s poor performance during the past five years was due to factors beyond its control. For instance, following cannabis legalization in Canada, regulators relied on a complex legal system to grant cannabis retail licenses.
The recent news in Germany came with some caveats, as well. Adults will be able to grow cannabis at home or join a club to obtain the substance. No one can join more than one club and no one outside the club can purchase, among other stringent rules.
What will the rules look like in the U.S. if legalization comes? Nobody knows. Legalization would likely attract many more players, including some with much deeper pockets than Tilray.
Lastly, illegal channels might remain firmly in place and compete with legally licensed companies.
Is there any good reason to consider investing in Tilray? If the company had managed to deliver consistent performance despite the industry’s issues, that might have been an argument in its favor. But Tilray has generally been unimpressive, especially considering that much of its revenue growth happened because of acquisitions.
TLRY Revenue (Quarterly) data by YCharts.
There has been some progress, but in my view, the risks and uncertainty surrounding the company and the industry far outweigh its potential to make a comeback. The market seems to agree.
Tilray’s stock continues moving in the wrong direction, and its share price is less than $2. Even at these levels, I’d recommend that investors stay away.
