Back in September, I discussed the bull and bear case for cannabis firm Tilray (NASDAQ:TLRY). At the time, two contrasting factors had a significant impact on Tilray stock. First, the novel coronavirus and its enormous health consequences theoretically boosted the need for natural therapeutic solutions, such as cannabidiol (CBD). Second, the coronavirus virus itself was on the decline.
In fact, when my article was published on Sept. 9, new daily coronavirus cases were just under the 33,000 level. This was a substantial improvement from the summer peak, which hit nearly 75,000 cases. Therefore, while Tilray’s investment in the U.S. CBD market via its Manitoba Harvest acquisition seemed like a broadly fortuitous decision, the timing was also unfavorable in a way. Cynically, you’d like to see cases rise for a possible speculative lift in Tilray stock.
Of course, that’s exactly what we’re seeing right now. Seemingly in the blink of an eye, new daily infections reached a peak of almost 195,000. At time of writing, the seven-day moving average of new cases has eclipsed 157,000. That was an unimaginable figure just a few months ago.
But then again, if you’re gambling on Tilray stock, rising cases is what you need to make the underlying bullish narrative stick.
An Upside for Tilray?
As you can imagine, the pandemic isn’t just a question of life or death. Even those who haven’t gotten sick (which statistically is the vast majority of the country) were negatively impacted. For instance, the Washington Post notes that the disruption to our daily schedule resulted in a condition experts have nicknamed “coronasomnia.”
To be clear, research regarding the purported health benefits of cannabis and CBD-infused products is ongoing. Early indications suggest that cannabis can be helpful for myriad conditions. However, it’s way too early to state that with authority.
Still, at this point, people may be willing to try anything to cope with the pressure. In that context, Tilray stock seems to have an upside pathway. Unfortunately, it’s still a complicated narrative.
FDA Stymies Tilray Stock at an Inopportune Time
Despite the potentially groundbreaking benefits of cannabis and CBD, the Food and Drug Administration has so far only approved one cannabis-based drug. Additionally, the FDA is reluctant to endorse CBD use, even with the Agriculture Improvement Act of 2018 (known as the “farm bill”) legalizing this non-psychoactive compound of the much-maligned plant.
This reluctance took on a decidedly pessimistic note when the federal regulatory agency stated late last year that CBD could harm your health. Therefore, the FDA implied that companies might have to prove that CBD was safe and effective before they could market CBD-infused food and beverages with health claims.
Logically, this fundamentally dampened enthusiasm for Tilray stock and its ilk because product evangelism was essential for realizing the upside in the green market. While public opinion regarding cannabis flipped in favor of legalization over the years, that still leaves many people opposed to the plant.
The Biden Effect
However, the legalization debate is also the reason why Tilray stock jumped higher once it became clear that Joe Biden will win the presidency. True, Biden historically opposed full legalization of marijuana. Instead, this time around, he and running mate Kamala Harris committed to decriminalization of possession, a significant step forward.
Still, regarding the U.S. CBD market specifically, Biden doesn’t need to ruffle too many feathers. After all, the 2018 farm bill legalized CBD. Instead, his administration can possibly coax the FDA to relaxing its draconian position on the compound.
Nevertheless, this seemingly positive political narrative gets tricky. Throughout the campaign post-pandemic, Biden promised to listen to the science. Well, he’d look awfully hypocritical if he deferred to the experts on the coronavirus and not on cannabis (CBD). I can see the Republicans salivating at their next attack line: Biden. He’s tough on corona but soft on marijuana.
Frankly, it wouldn’t look too hot in what has been a surprisingly competitive electoral race.
TLRY Still Benefits from Rising Cases
However, we can’t afford to overlook the fundamentally important case for Tilray stock and that’s the sharply rising case load. Currently, many states and local jurisdictions face the unenviable task of deciding whether they should impose strict mitigation protocols.
These leaders have a duty to protect their communities. Sadly, though, that protection will come at a cost. From a genuine perspective, they must conduct a cost-benefit analysis: is the mitigation worth the long-term damage to the economy and society?
I’m glad I’m not in that situation. But it could be beneficial for companies like Tilray. With more people likely interested in natural solutions for conditions such as insomnia, TLRY stock could rise higher. Therefore, in this new context, I wouldn’t begrudge a speculative wager.
But if you go this route, you should be aware that the road ahead is almost certainly going to be turbulent. Further, competitors with strong backers like Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON) may provide more comfortable exposure. Still, if you’re seeking more upside than comfort, TLRY could be your ticket to success.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
