Like all cannabis stocks, it’s been a rough year for Tilray (NASDAQ:TLRY). After becoming one of the first cannabis companies to issue an initial public offering in July 2018, the stock has almost come full circle.
Upon its debut, TLRY stock was $17 per share. Tilray was then carried on the cannabis wave and inflated to a closing price of $139.60 on Nov. 7, 2018. Today Tilray stock is trading at around $23 per share and some analysts are wondering if the $17 IPO price will offer support for the falling stock.
However, as troubled as the cannabis industry looks today, doubts over legalization are the only reasons to avoid the sector. Unless marijuana fans fail to secure federal legalization, cannabis stocks have a bright future — if you have the time and the patience to wait for it.
The Bubble Has Burst for Pot Stocks
It wasn’t long ago that marijuana stocks were the darlings of Wall Street. But the 2018 bubble has burst. And if you are an investor that was counting on the inflated prices of these stocks to fund an impending retirement, you’re out of luck. The market has soured on these stocks. And like a lot of “unicorn” stocks, investors are waiting for these companies to prove themselves by posting a profit.
It’s important to note that Tilray stock is not being singled out. That would be more concerning. But the entire industry is being affected. Take for example Canopy Growth (NYSE:CGC). On Sept. 7, 2018, CGC stock was at a record level of $51.53. As of this writing, the stock is trading for less than half of that price. The same can be said of Aurora Cannabis (NYSE:ACB) stock that was trading for $10.52 on Oct. 12, 2018. As of this writing, it is trading at $3.78.
But does that mean they are not worth the investment? That depends on your time horizon. Housing prices get into bubbles, too. Does that mean your house isn’t worth the investment? That’s the nature of a free market. The key to any marijuana stock is to remember it’s a long-term play.
How Long Will it Take for Growth to Emerge?
Despite the shifting tide of public support, full legalization of cannabis will take time, particularly in the United States. However, while Canada has now achieved full legalization for both medicinal and recreational marijuana, TLRY is taking an unconventional approach.
Although headquartered in Canada, TLRY is focusing its efforts outside of Canada. Specifically, Tilray is looking to deploy its capital in the United States and European markets. In terms of global growth opportunities, these markets are, in the words of Tilray CEO Brendan Kennedy, “orders of magnitude” larger than Canada’s.
To help accomplish this, TLRY is acquiring assets in a number of segments of the worldwide cannabis market. Most notably, Tilray acquired Manitoba Harvest, the world’s largest hemp food company, in April. This gave it a push into the U.S. hemp market which some analysts concede positions Tilray better than many of its Canadian peers.
Tilray also acquired a 250,000 square-foot facility in Portugal to streamline its European operations. Plus, the company recently signed an agreement with Cannamedical Pharma, a German medical cannabis importer that will give Tilray access to the German market.
Tilray is also not a grower. Instead, it is committed to an asset-light model that relies less on production and more on product development and retailing.
The company is largely focused in the medicinal marijuana sector. While this area looks to have a lot of promise, there may be a long and winding road to regulatory approval.
Can You Afford to Wait on Tilray Stock?
Over the next few years, investors will need to practice patience because profit is not likely for any of the major cannabis stocks. The cannabis industry as a whole has been tainted by several negative headlines. But that has more to do with a few bad actors than the overall potential of the space. The potential hasn’t changed. The question will be can the industry deliver?
Cannabis legalization is becoming a reality in more and more of the United States. In just the last few years, 10 states have legalized recreational marijuana. A significantly larger number have approved cannabis for medicinal use. The pace of legalization is slow. The pace of regulation will also be slow. But as the cannabis market evolves to one that is legal and regulated, there are several large cannabis players who stand to benefit. I believe Tilray is one company that will have a seat at that high table.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.
