Less than a year ago, Tilray (NASDAQ:TLRY) traded at an eye-popping $300 a share. But Sept. 19 is a long time ago in the cannabis investing world, as TLRY stock fell steadily since that time, closing yesterday at $35.70.

Why did investors continue dumping Tilray stock after the company’s first-quarter report beat revenue estimates but only nearly met on non-GAAP earnings?

Profits Are Secondary … for Now

In the first quarter, Tilray reported revenue nearly doubling but in absolute terms, this amounted to just $23 million. It lost 27 cents a share non-GAAP or a loss of 32 cents a share GAAP. The company could claim that production levels are not at a critical, positive inflection point where revenue exceeds costs. But the reality is that the company is still spending heavily by acquiring firms to get bigger. Profits, for now, are secondary.

During the first quarter, Tilray news highlighted its recent acquisitions of Manitoba Harvest and Natura Naturals, accelerating its entry into the U.S. hemp and CBD markets, and increasing its production and manufacturing capacity in North America and Europe. The company hinted that global operational expansion will incur more investment costs. But the pace of total kilogram-equivalent sales is not fast enough. It more than doubled to 3,012 kilograms from 1,299 in the prior year. Yet average selling price (ASP) per gram fell from $5.94 to $5.60. Without excise taxes, ASP would have been $5.28, which shows how fast prices fell from last year.

Tilray’s fundamental problems are becoming clear. If every other cannabis firm is increasing production to grab more market share, then the market will become saturated. For now, investors should watch Tilray’s gross margin trends over the next few quarters. Gross margin was 23%, down from 50% last year. The drop is due to costs associated with opening cultivation facilities in Canada and Portugal.

Investing Opportunity Missing

Even speculators are hard-pressed in finding positive catalysts ahead that would lead to a bullish opportunity. Tilray invested $32.6 million in Q1 to increase its facility size. It announced support for two clinical studies. It also started harvesting medical cannabis in Portugal in the period.

None of these developments will lead to profits in the near-term. Markets are rational in bidding TLRY stock to new lows almost daily throughout 2019. The decline is steady despite short float at just 7%. The small bear position in Tilray stock is due to the high cost of borrowing shares to short it. By comparison, the short-flat in Canopy Growth Corporation (NYSE:CGC) stock is 36.5%.

Although Tilray is a risky stock to short, cannabis stock investors may want to look elsewhere.

Waiting is the Hardest Part

Tilray is betting a capacity build-out will drive revenue growth in the future. Yet the company pushed out its target for supply and demand balances in the marketplace. If the company completes its facility build-out by the end of the year, it still needs more time to cultivate and process cannabis product. That could take at least another 12 to 15 weeks. All of that waiting at a time when markets are starting to demand that companies make profits will hurt TLRY stock further.

The cannabis marketplace suffers from limited supply availability. If Tilray succeeds in producing better quality in large volumes, revenue may potentially grow faster than expected. And if Tilray sets a favorable product mix to increase ASP, the cannabis producer could slow the growth of its losses.

Price Target and Your Takeaway on Tilray Stock

The 12 analysts who offer a price target on Tilray think the stock is worth ~$83. This represents an upside of more than 130%. Rational investors could assume a discount rate of 13-14% in a five-year DCF growth exit model. But even if the company at a minimum doubles its revenue annually, the stock has a fair value of $30.55 (per finbox.io). This is about 15% below its recent stock price.

Tilray is performing worse than Cronos Group (NASDAQ:CRON), Aurora Cannabis (NYSE:ACB), and Canopy Growth in the last quarter. This may signal a loss in confidence over Tilray’s prospects relative to its competitors. Avoid Tilray until the company reports better revenue growth and smaller losses.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.