One of the sad realities of the novel coronavirus is that it indiscriminately devastated most sectors. However, commiseration was no benefit to Tilray (NASDAQ:TLRY) and the rest of the cannabis space, which suffered badly. At time of writing, TLRY stock finds itself down more than 94% from its closing high.
I’d like to say this straight off the bat: if you’re a risk-averse investor, you should steer clear of TLRY stock. Even if you have the occasional hankering for speculative bets, I’d still recommend being cautious about Tilray stock. While the broader narrative of cannabis – that of witnessing a previously illegal market turn into a viable, taxable one – is intriguing, you can find better bets in this space.
Still, that’s not to say that Tilray stock is completely without merit. For one thing, cannabis has gained significant credibility over the years. Perhaps the best example of this is GW Pharmaceuticals (NASDAQ:GWPH) and its cannabis-based drug Epidiolex. A few months ago, the Drug Enforcement Agency declared that Epidiolex is no longer a controlled substance under the federal Controlled Substances Act.
Of course, this isn’t a specific catalyst for Tilray stock. However, the announcement demonstrates that government agencies are warming to the idea of cannabis-based medicines. Further, this sentiment aligns with public opinion, which has shifted favorably toward full marijuana legalization.
In addition, TLRY focuses more on the research and development aspect of the green industry. After all, Tilray stock first lit up investors’ trading screen when the company received U.S. approval to export marijuana to the U.S. for medical research.
But this might not be enough for the cannabis firm, which is racing against time.
TLRY Stock Is Running into Fiscal Credibility Concerns
Before I get into my concerns for TLRY, I’d like to point out another potential catalyst for the company. Last year, Tilray closed its deal to acquire Manitoba Harvest, which is a pioneer and global leader in branded, hemp-based foods – at least according to the market literature.
At the time of the deal, it was significant for Tilray stock in that it gave the underlying firm exposure to the U.S. cannabidiol (CBD) market. For example, Manitoba features “100% all-natural product lineup includes hemp hearts, hemp protein powder and hemp snacks and are currently carried in about 16,000 retail locations across the U.S. and Canada.”
As well, cannabis industry experts predict that by the year 2022, U.S. CBD sales will hit $1.8 billion.
When you see this forecast post-pandemic, however, you might question its viability. But in my opinion, CBD sales could still reach that figure or even exceed it. Quarantines along with severe economic pressure have caused people tremendous stress. From the get-go, CBD generated much excitement due to its potential for addressing anxiety and depression.
To be fair, medical research has not yet concluded that CBD is effective in these and other issues. But that’s not why I have concerns about Tilray stock. Rather, the financial picture does not look encouraging.
As many other analysts have pointed out, TLRY is burning through cash. And while the revenue increase on a year-over-year basis is encouraging, we’re talking about large percentage increases due to small nominal comparisons.
Plus, Tilray doesn’t have the backing of big partner, such as the case with Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON). As we head deeper into an economic crisis, this lack of support is becoming very conspicuous.
More Distractions Weigh on TLRY
If that wasn’t enough, a Tilray shareholder filed suit against the company in the U.S. District Court for the District of Delaware. The allegation? TLRY’s top executives misled stakeholders and engaged in insider stock sales.
Now, I’m not going to rush to judgment and take sides. But I will say that this situation is ripe for an asymmetric impact. At a time when an entire industry is struggling to stay above water, accusations of corporate malfeasance is the last thing Tilray needs.
Finally, while the coronavirus may play the role of benefactor to Tilray stock via increased demand for CBD, it’s not an exclusive tailwind. Other companies, most notably Charlotte’s Web (OTCMKTS:CWBHF), will be eager to soak up whatever sales they can generate.
As I mentioned above, I won’t completely throw out the possibility of upside for TLRY. But the window of opportunity is a very narrow one.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
