Being a Tilray (NASDAQ:TLRY) shareholder hasn’t been easy or fun in a long while. Sure, TLRY shares soared out of the gate following its initial public offering (IPO) from nearly a year ago. However, the cannabis firm’s equity has been in a decided downtrend since its peak in September.
All told, Tilray stock is down more than 30% year-to-date, and is off more than 80% since September’s high. That was right before Canada legalized recreational use of marijuana.
(Almost) needless to say, the company failed to live up to the hype.
However, some good Tilray news is coming for investors who’ve held onto their position despite the pullback. Even better, anyone who’s kept TLRY on their watchlist but not yet added it to their portfolio may benefit significantly. A solid second act is on the horizon, and it’s about to begin.
A Looming Slowdown
It would be naive to pretend marijuana-mania didn’t get the better of many investors last year. Between the major stake Constellation Brands (NYSE:STZ) took in Canopy Growth (NYSE:CGC) and the self-serving noisemaking several startups initiated, it was easy to dive in.
As it turns out though, the cannabis business is just like any other. An organization can’t spend haphazardly in the name of growth. Competition does drive prices down. And fiscal success takes far longer than many startups advertise.
Most marijuana stocks have suffered to various degrees on the recognition of those realities, though Tilray stock especially so. And we have the one-year anniversary of Canada’s recreational legalization in sight, which brings up an uncomfortable point: it’s conceivable that the one major growth driver TLRY has leveraged won’t be a big growth driver much longer.
Indeed, rival Hexo (NYSEAMERICAN:HEXO) reported a sequential decline in last quarter’s total revenue. It also disclosed only a modest 9% increase in recreational sales at a time when that usage should still be ramping up. Other pot players still seem to be growing at least this segment of their business.
But one can’t help but wonder if Hexo simply was the first to run into a growth wall on the recreational front. If so, the markets may well upend Tilray stock again in August. That’s when management next posts their quarterly numbers.
The company’s been quietly building a growth engine to replace the one that will weaken once the one-year anniversary of Canada’s legalization arrives and the year-over-year comparisons fade.
Sweet Spot in the U.K.
Late-last month, reports surfaced of a seemingly boilerplate event. Tilray, in short, has delivered a bulk supply of cannabis-based, orally administered medicines to the U.K. With no clarification on what “bulk” meant, investors could analyze only little. Despite lacking details, it’s no small matter for Tilray stock.
The U.K.’s cannabis landscape is complicated. Europe’s pharmaceutical regulators have generally been more open-minded than their North American counterparts. However, regarding cannabis, the U.K. has proven oddly regressive.
That’s changing though. Lawmakers there legalized medicinal cannabis in November. That inspired the development of a small number of cannabis-specific clinics meant to treat people which chronic conditions. A couple more are in the works.
By and large though, the U.K.’s cannabis market remains immature. Plus, lukewarm support from caregivers is unlikely to break through the nation’s still tricky cannabidiol (CBD) and THC rules. However, this situation provides an opportunity for TLRY to establish its presence.
The clincher: Although it’s now legal to sell CBD products in Britain, it’s not legal to manufacture them there. The only way U.K. consumers and caregivers can get their hands on them is with a specific import license. Subsequently, TLRY has it, boosting prospects for Tilray stock.
The U.K. is, ironically enough, one of the largest legal cannabis producers on the planet despite the illegality of making CBD products there; the bulk of it was exported. If something could be done with it at home though, such a development could fuel economic growth. As attitudes change, such a shift becomes likely.
Change takes time though, which leaves the window of opportunity open right now for a company like Tilray, which is already capable of meeting the need.
Looking Ahead for TLRY
For perspective, consultant Prohibition Partners believes Europe’s cannabis market will be worth more than $100 billion by 2028. Geremy Thomas, who serves as CEO of the U.K.’s Sativa Investments, recently commented:
I do think that the UK medicinal cannabis market will end up being the largest in Europe, which in turn will significantly compete with, if not dwarf, what we’ve seen in North America.
Tilray is well-positioned to plug into that mostly underserved market. For better or worse, they’ll operate under the watchful eye of regulators that tend to be slow to change.
In other words, imported medical cannabis products may be just enough of a solution to sate the U.K.’s forward-thinking doctors and patients, negating any need or desire to make such medicines there. That sets the stage for a solid second act from TLRY in the near future as Canada’s recreational sales decelerate.
Such proof of life can’t come fast enough for anyone waiting on Tilray stock to recover.
As of this writing, James Brumley held no position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
