Traders are a restless bunch. But in the case of Tilray (NASDAQ:TLRY), patience should be a virtue. The company should complete its merger with Aphria in mid-April. In the meantime, investors in TLRY stock should look for, and actually cheer for, any pullbacks in the share price. After the merger is approved, those may not be easy to find.
Patience was lacking earlier this year when investors’ fear of missing out drove TLRY stock over $60 per share. But the stock has since fallen back and now trades for less than half of that price. This has left some Tilray bulls wondering how low the bears can drive the stock.
However with the merger date fast approaching, it will give the bulls an opportunity to take control.
Enjoying Some Good News on TLRY Stock
Unlike the “meme stocks,” TLRY stock was moving up on what appeared to be actionable news, Aphria’s reverse merger with Tilray. By now, interested investors have learned all the details of the deal. But it bears repeating that the two companies, which will trade under the TLRY ticker, will be the largest retail cannabis company.
Tilray also gave itself a boost with its February earnings report, beating analysts’ expectations on both earnings and revenue. The company is still not profitable but according to InvestorPlace contributor Mark Hake, the company post-merger may be net income positive by the end of the year.
However the stock is fading as the merger date approaches. And that may be because investors see TLRY stock as being fully valued.
Speaking It Into Existence
One of the obstacles facing cannabis companies trying to enter the U.S. market is the existence of multi-state operators (MSOs). These companies typically operate their own cannabis stores and production facilities. But in order to expand into a new state, they have to build an infrastructure in that state from the ground up.
That’s vastly different from the model used by tobacco and alcohol industries, both long legal at the federal level and deeply entrenched. In February, Tilray CEO Brendan Kennedy offered his opinion that the MSO model may not be the one that prevails when (and it seems more like when) the federal government legalizes cannabis.
“I have a pretty strong opinion that the existing MSO adult-use model is not going to be the model of the future,” said Kennedy. “I think it looks more like tobacco. I think it’s more like alcohol.”
If that were to happen, it would be a benefit to Tilray as it completes its merger with Aphria. The latter acquired SweetWater Brewing in 2020 for $300 million. SweetWater sells the most popular hemp-flavored beer in the country. Aphria management believes the beverage line provides, “a platform and infrastructure for access to the U.S. market more quickly in the event of federal legalization.”
Of course just having an opinion doesn’t mean Kennedy can wish a favorable model into existence. And it seems more likely that a growing number of states will legalize marijuana before any federal legislation is adopted.
Buy Any Dips
The way forward for TLRY stock will depend on many factors that will work themselves out. However, Tilray may not have that much to do with how they work out. If the MSO model remains the standard, it will be a challenge for Tilray to efficiently enter the U.S. market.
And that’s the case with many cannabis stocks. Louis Navallier anticipated TLRY stock finding support around the $30 mark. It did not. And that could work out very well for opportunistic investors.
Although federal legalization may not happen in 2021, the stock will likely climb above the $30 level after the merger. And this time, it’s likely to find support. Which will make today’s price look like a deal.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.