Very few, if any, market segments can compete with cannabis stocks for sheer magnitude of volatility. A prime example is Tilray (NASDAQ:TLRY). Having only enjoyed its initial public offering this July, TLRY stock has already obliterated all expectations.
At the same time, extreme bullishness often meets extreme bearishness. When compared to its all-time high, Tilray stock has mathematically absorbed a brutal beating. Even more concerning, the negative momentum hasn’t yet subsided. On last Friday’s session, TLRY stock dropped more than 8%.
Still, if you take a broader view, Tilray offers an enticing look for speculators. Technically speaking, TLRY hasn’t moved that much since late September. During that time, both the optimists and pessimists have had a chance to assess the company without the heightened emotions.
Another development that just occurred is political. Early last week, Americans hit the ballots for the midterm elections. While most eyes focused on President Donald Trump and the specter of a split government, the midterms were really a gauge on voters’ appetite for marijuana.
The results suggest that legalization proponents have much to smile about. Michigan represented a key victory, becoming the “tenth state to legalize recreational weed. More importantly, it became the first Midwestern state to do so.”
Shareholders immediately felt the impact to TLRY stock, with shares skyrocketing nearly 31% a day after the midterm results. Other notable publicly traded cannabis companies, including Cronos Group (NASDAQ:CRON) and Canopy Growth (NYSE:CGC), also jumped substantially higher.
However, most of these politically inspired gains have fallen by the wayside as benchmark indices have struggled to maintain traction. Thus, the pros and cons for buying Tilray stock are evenly balanced. So how should prospective buyers approach TLRY ahead of its third-quarter earnings report?
TLRY Stock Earnings Will Focus on Potential, Not Metrics
Heading into Q3, I agree with Zacks Equity Research’s assessment on TLRY earnings. Based on their analytics, Zacks doesn’t place high confidence on Tilray beating its earnings print. However, when the company discloses results after the close of Nov. 13, the focus will be on the industry’s potential.
Nevertheless, the markets will be keen on what Tilray brings to the table. Covering analysts peg earnings per share at a loss of 12 cents. Individual forecasts range from -15 cents to -8 cents. EPS history is of course limited for Tilray stock. In Q1 2018, EPS was a loss seven cents, and Q2 incurred a 17-cent loss.
On the revenue side, analysts anticipate TLRY delivering $10.1 million. Individual estimates range between $8.8 million and $11.2 million. In Q1 of this year, Tilray rang up $7.8 million, and in the next quarter, $9.7 million.
Obviously, should management bring home the goods, Tilray stock will likely swing higher. But investors are willing to forgive some of the less-than-stellar figures associated with the legal-cannabis industry. The real focus, then, will be on guidance.
Tilray stock stands to benefit on two key political developments. First, Americans have demonstrated significant support for medical marijuana. In September, TLRY announced that the Drug Enforcement Agency exempted the company’s pharmaceutical-grade cannabis for international importation. As a result, the University of California San Diego will conduct a clinical trail for cannabis’ effectiveness in treating a neurological disorder called essential tremor.
Second, former Attorney General Jeff Sessions is now out of the picture. Sessions relished in his “tough sheriff” role, reversing many Barack Obama administration policies. Earlier this summer, one of the bear cases against TLRY stock was that Sessions presented a strong headwind. With him gone, management has one less critical thing to worry about.
Tilray Stock Is a Gamble, But a Compelling One
If this all sounds like I’m angling for a bullish take on Tilray stock, you’re right. But please don’t get me wrong: I’m not ignorant. I realize that TLRY has either the potential to shoot for the moon after Q3, or to resemble one of its many craters.
Ultimately, though, I believe the markets are placing more weight on the longer-term fundamentals, which are incredibly positive. At its most basic, legal marijuana is a medical and retail market that didn’t exist a few years ago. Now, it has the proven viability to generate significant income at both the state and federal level.
With many states suffering budget shortfalls, even conservative lawmakers can’t ignore marijuana’s financial cushion. Plus, Sessions is out of the picture, and President Trump has more pressing concerns, such as possible impeachment hearings.
Opportunity beckons in TLRY stock. My take is go ahead and place your wager: just be careful and treat Tilray like a speculative, but compelling, gamble.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
