Pot stocks in general benefited from the “meme stocks” phenomenon. But Tilray (NASDAQ:TLRY) stock was a name that saw one of the greatest boosts from the mad rush into certain stocks on online hype alone.
This, and other factors, sent Tilray shares “to the moon” back in February. In less than two weeks, the Canada-based cannabis play went from around $20 per share to as much as $67.
But said factors weren’t enough to keep the stock flying high. As the markets reassessed the situation, shares gave up their gains. And then some. The stock today changes hands at around $16 per share.
A lot of this has to do with the company’s recently closed merger with rival Aphria. There’s big potential for this deal to pay off.
Yet, as seen from the stock’s performance, investors are pessimistic whether it will succeed. Even so, with so much negativity weighing down shares, unexpected success could send shares bouncing back with a vengeance.
Plus, there are some other factors, like the all-but-written off legalization catalyst, that remain in play for now.
The Future Hinges on the Aphria Deal
As I said above, many factors played a role in this stock’s roller-coaster ride earlier this year. First of course, was the meme stock/Reddit stock factor that resulted in an epic short squeeze.
This ramp-up in investor interest was magnified by the renewed interest in pot stocks, due to the “blue wave” U.S. election results. The Democrats retaking control of both the U.S. Congress and the White House pointed to increased odds for full marijuana legalization.
But future moves for Tilray now largely depend on the results of its merger with Aphria. Closing late last month, the deal made this the largest cannabis company by revenue. Yet this alone doesn’t mean much for the potential success/failure of the transaction. Yes, the combination promises to deliver $81 million in annualized cost savings in less than two years. That’s good news, considering how both companies have been held down by continued unprofitability.
But given past disappointments, it’s understandable why investors have taken a wait-and-see approach. But while it’s a gamble, from a risk/return standpoint, it may be one worth taking.
The Legalization Catalyst Remains in Play
Tilray may be down more 75% from its February highs. But there’s more than the possible upside from this merger that could move the needle. U.S. pot legalization continues to be something that could also put this stock back in the right direction.
Sure, investors have given up on legalization happening within the next year. That’s clear not only in the poor performance of TLRY stock. Other risky pot stocks, like Sundial Growers (NASDAQ:SNDL), have gone on a roller-coaster ride. Sundial zig-zagged from 60 cents to $3.96 per share, and back to sub-$1 per share levels.
Higher-quality pot plays like Canopy Growth (NASDAQ:CGC) haven’t fared well, either. Canopy is down over 50% from its “blue wave” highs set back in February.
Yet, Wall Street’s waning confidence may be misplaced. On the state level, the legalization wave continues, in both blue states and red states. Even with the executive branch’s surprisingly moderate take on pot legalization, things are still trending for a full-on end to pot restrictions.
As support for legalized weed becomes a more bipartisan issue, with a majority of Republican voters supporting it as well, we may see big-time change, no matter which party controls Congress after the 2022 election cycle.
Full legalization, which will allow Tilray to enter the American market, remains in play. And news of it alone will likely be enough to give shares a boost once again.
Risk/Return is in Your Favor With TLRY Stock
Despite the massive sell-off, TLRY stock remains richly priced. With a current market capitalization of $7.2 billion, investors are not only pricing in heavy organic growth, but the payoff from this deal as well.
Yet with negative sentiments now weighing it down, we could see a big reversal down the road. As Jeffries’ Owen Bennet discussed in a recent upgrade of the stock, the company is also well-positioned in European markets like Germany. The analyst gives shares the equivalent to a “buy” rating and a $23 per share price target.
Yes, near-term negativity could continue to weigh down on shares. But several catalysts remain to send this “to the moon” once again. The risk/return proposition with TLRY stock may be on your side at today’s prices.
Take advantage of the situation while shares remain at their current price levels.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
