I’ve followed the cannabis sector for some time. In my coverage of the space, I have developed a consistently bearish opinion on shares of Tilray (NASDAQ:TLRY) ever since the stock went parabolic and hit $300 in late 2018. Since then, TLRY stock has come crashing down.

Tilray

A few weeks ago, signs emerged indicating that the stock may have bottomed around $50 (though it still wasn’t a buy).

It didn’t. Instead, since breaking through the $50 level, Tilray has continued to fall and now trades below the $40 level.

In other words, Tilray stock has turned into a falling knife with a lot of downside momentum. In order to stop all that downside momentum, you need a strong catalyst, but there is no such catalyst on the horizon for Tilray. As such, trying to guess a bottom in Tilray stock is a futile game for the foreseeable future.

That doesn’t mean Tilray is without hope. Eventually, a positive catalyst will show up. When it does, it will converge on what has become a reasonably attractive valuation for a potentially huge cannabis company, and the stock will shoot higher. But, that won’t happen anytime soon.

As such, Tilray stock is a must-avoid for the time being. Instead, amid recent cannabis market weakness, investors should look into buying Canopy Growth (NYSE:CGC) – the highest quality name in the group, or Aurora (NYSE:ACB) the cheapest name in the group.

Tilray Is a Falling Knife

Tilray has a lot of downside momentum.

For reasons still largely unknown, investors chose Tilray as the cannabis stock that would get the most hype during 2018 cannabis craze. As such, Tilray went from $20 in July 2018, to $300 in September 2018, on nothing more than pure speculation. That bubble popped right after the stock hit $300. The stock has done nothing but come crashing down ever since.

Importantly, nothing has stopped this sell-off in TLRY.

Over the past several months, the cannabis market has benefited from a fairly constant flow of good news. More big money investments have come rushing into the space, with Cronos (NASDAQ:CRON) scoring a multi-billion investment from Altria (NYSE:MO).

Hemp became legalized throughout the U.S. with the passage of the Farm Bill. Many Canadian cannabis giants started to make their move into America, including Canopy buying out U.S. cannabis company Acreage. Supply shortages in the Canadian market eased. Tilray reported strong first quarter numbers that comprised triple-digit revenue and volume growth.

Yet, despite all that, Tilray stock has continued to sell off, and no technical barriers have slowed the sell-off. Tilray cut through $200 quickly. Same with $100. And every $10 interval lower all the way to $40.

No Positive Catalysts on the Horizon

When you have a stock that is stuck in a secular downtrend like this, you need a hugely positive catalyst to turn the ship around. Unfortunately, there is no such catalyst on the horizon for TLRY stock.

The company already reported strong first quarter numbers. Those weren’t enough. Maybe second quarter numbers will be better and provide nice support. But, those are three months out.

Meanwhile, TLRY stock has already shown immunity to positive news on the U.S. market front, mostly because the company isn’t making big moves in the market. This could change. The company could announce some big expansion into the U.S. But, such an announcement isn’t super likely at this point in time.

The most likely catalyst here is a big money investment into Tilray. That could happen. TLRY stock has become considerably cheaper, and as it has, the likelihood of a big money investment has gone up. But, if big money does enter this space, the most likely destination is Aurora, since Aurora is both bigger and cheaper than Tilray.

All in all, then, the likelihood that a catalyst over the next few months shakes TLRY stock out of this downtrend is low.

Bottom Line on Tilray Stock

Tilray stock is a falling knife with a lot of downside momentum. In order to shake the stock out of this downtrend, you need a hugely positive catalyst. But, no such catalyst is visible on the near term horizon for this stock. As such, lower is the most likely path forward TLRY stock.

As of this writing, Luke Lango was long CGC and ACB.