The passage of the Secure and Fair Enforcement Banking Act (SAFE) in the U.S. House of Representatives, which would provide some legal protection for financial institutions seeking to work with cannabis companies, marked a milestone for the American legalized marijuana industry but had a negligible effect on Tilray (NASDAQ:TLRY) stock.
There’s a robust debate afoot concerning whether the SAFE Act will pass the Senate, an event less likely than the House passage.
My contention is that cannabis stocks in general, and Tilray stock in particular, is worth owning irrespective of the SAFE Act’s fate because the company’s outlook remains encouraging — and because the cannabis market will continue to expand.
Don’t Buy TLRY Stock as a Wager on the SAFE Act
The financial media was buzzing when the SAFE Banking Act easily worked its way through the House of Representatives with a 321-to-103 vote, as this gave the legalized cannabis industry a much-needed shot in the arm amid a prolonged marijuana-stock price correction. The Tilray stock price had suffered along with most other cannabis stocks throughout the summer. Stockholders were hoping for the SAFE Act to bring a sense of relief along with a share-price boost.
No sustained relief came, however, as the TLRY stock price went mostly sideways and then downwards: currently, the share price is much closer to its 52-week low of $24.85 than its 52-week high of $178.85. Yet, at least U.S.-based cannabis businesses were given some hope that they would soon be able to get access to loans, credit-card services, and other benefits that come from working with big banks.
If you’re counting on the SAFE Act passing the Republican-majority Senate and becoming the law of the land, I wouldn’t keep your hopes up. Representing the analyst community generally, MKM Partners analyst Bill Kirk remains moderately pessimistic regarding the prospects of the SAFE Act getting through the Senate:
“Its passage through the House was largely expected, with the real test (the Senate) yet to come… We believe partisan lines have likely become more rigid following the impeachment inquiry, and U.S. Senate Majority Leader (Mitch McConnell) has spoken out against cannabis in favor of hemp.”
And so, I would not recommend wagering on the passage of the SAFE Act with a long position in Tilray stock. However, that doesn’t mean that TLRY stock isn’t worth owning, as I’m still bullish on the company long-term.
TLRY Is a Dealmaker
I feel that Tilray’s ability to seal a deal could provide bullish momentum to the Tilray stock price in the second half of 2019 as well as in 2020. The company’s much-publicized agreement with Budweiser maker Anheuser-Busch InBev (NYSE:BUD) to conduct research into the potentially lucrative Canadian cannabis-infused beverage market demonstrates Tilray’s willingness and ability to gain the confidence — and the partnership — of capital-rich mega-corporations.
Other recent deals include Tilray’s purchase of Manitoba Harvest, which a press release describes as “the world’s largest hemp food manufacturer,” as well as a buyout of boutique cannabis-product retailer FOUR20. The acquisition of FOUR20 will, according to Tilray Chief Corporate Development Officer Andrew Pucher, provide “a premium retail experience for the mainstream cannabis consumer” and enable Tilray to “elevate the retail experience for consumers by offering the best quality-tested products while preparing for the next wave of legalized product launches taking place by year’s end.”
The Takeaway on Tilray Stock
It’s tempting to dismiss TLRY stock if you’re skeptical of the SAFE Banking Act’s passage through Congress, and you might be feeling skittish if your Tilray stock position is in the red. Nonetheless, I remain an optimist on both the company and the sector as a spate of exciting deals accelerates the mainstreaming of cannabis in North America and, perhaps, worldwide.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.