In a distressing reversal of fortune, cannabis-related companies like Tilray (NASDAQ:TLRY) have suffered sharply. No longer content on listening to a strong narrative, investors wanted hard numbers. Unfortunately, the weed alpha dogs like Cronos Group (NASDAQ:CRON), Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) have all produced disappointing results. For Tilray stock, it’s down more than 56%.
Of course, several analysts have their take on the issue, and I’m not going to speak for any of them. I will say, though, that in my view, marijuana investments like TLRY stock are stuck between two worlds: one that emphasizes traditional investment metrics, such as earnings-per-share, and another that banks on the broader industry’s potential.
To be frank, most investors — and I’m one of them — got caught up in the latter. Generally, we believe that it’s an incredibly difficult, if not impossible to assess names like Tilray stock against traditional metrics. It’s unlike a blue-chip stock where you have ample historical data to work with.
At the same time, I don’t begrudge that volatility rocked this space. Sure, I’d argue against the magnitude of bearishness. Nevertheless, investors must see firm evidence that their funds are being put to good use. Due to recent controversies like the CannTrust Holdings (NYSE:CTST) scandals, these high-profile incidents impugned the entire sector.
Therefore, investors lost patience, which I can appreciate. From their perspective, it was time to put up or shut up. When major player after major player failed to produce confidence-inspiring earnings results, prior weed advocates abandoned ship.
But with TLRY stock appearing to have stabilized at the $30 level, should speculators consider giving it another look?
Tilray Stock Has a Great Story … If It Can Turn the Page
Not too long ago, TLRY stock touched the $300 level on an intra-day basis. If you think about it, this is a remarkable concept: at one point, no matter how briefly, someone thought that Tilray stock was worth $300 a pop. In that context, losing a zero is a very good price indeed.
Joking aside, my InvestorPlace colleague Ian Bezek explored the idea of capitalizing on the marijuana sector’s fallout. Regarding Tilray stock, Bezek sees potential. However, he notes that other companies like Canopy and Cronos have big backers. Without similar support for Tilray, the medical cannabis specialist has an uphill challenge.
It’s a fair point. From the get-go, cannabis firms have sought mainstream credibility. Nothing spells out “making it” quite like a backer like Altria Group (NYSE:MO) or Constellation Brands (NYSE:STZ).
In that regard, I agree with Bezek. However, Tilray stock features a powerful narrative that just got more interesting.
As I’m sure you’ve heard, the vaping crisis has captured the nation’s attention. Increasingly, the public, including some vape users, are leery about the practice.
Because the vaping news cycle seemingly gets worse every day, I’m not sure how this will play out. However, cannabis, which is also a “vapable” substance, for medicinal use has only ramped up in popularity. In fact, some medical professionals who were previously opposed to cannabis are now prescribing it.
And that sentiment suits TLRY stock for the long haul. Tilray’s products are consumables wrapped in unassuming and discreet labeling. Designed purely for medicinal purposes, they don’t have the stigma associated with stereotypical cannabis platforms.
Plus, the vaping crisis provides an opportunity for TLRY to distinguish itself as a medicinal player, not a recreational one. That’s crucial as it reaches out to the international markets.
A Global Opportunity to Advantage
Many, if not most bullish arguments about TLRY stock focus on the potential U.S. legalization of marijuana. After all, 62% of the American people support legalization. With a total population of over 327 million, that could add up to serious coin.
However, the U.S. isn’t the only non-Canadian nation that’s growing tolerant to weed. In a surprising report from CNBC, many Asian countries are turning toward medical cannabis. Historically known for their draconian narcotics laws, if Asia converts to green, it would be a game-changer, irrespective of what happens in the U.S.
For example, Japan recently approved clinical trials for Epidiolex, a cannabidiol (CBD)-based oral solution for helping epileptic patients. Consequently, Japan also has a rapidly aging population. If medical cannabis gains greater acceptance there, it would represent a huge boon for specialists like Tilray. Logically, this would skyrocket Tilray stock, perhaps back to its intra-day highs.
That said, TLRY stock has a financial credibility problem. Management must convince prospective buyers that it can stay in the business long enough to actualize these positive forward narratives.
And that’s the underlying reason why Tilray stock and its ilk are so volatile. Yes, the story is great … profound, even. But getting there is the hard part. I for one am a believer, but I can also appreciate why others remain skeptical.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.