Putting it simply, Tilray (NASDAQ:TLRY) stock has made its way back to square one, giving back all of the gains it made during its meme-stock days.
At around $10.10 per share, it’s retreated to its levels from the beginning of 2021, right before the Democratic takeover of the U.S. Senate boosted the chances of federal pot legalization. The latter move would enable Canada-based cannabis companies, including Tilray, to enter the American market.
Despite the poor performance of TLRY stock in recent months, it won’t necessarily encounter further pain ahead.
It’s true that Congress has made little progress when it comes to reforming U.S. federal pot laws. However, I agree with Tilray CEO Irwin Simon who said that a fully open American pot market is just two years away.
And another catalyst remains in play for TLRY stock: the company’s ambitious expansion efforts. Specifically, it is moving aggressively into medicinal cannabis, and carrying out more mergers and acquisitions.
The M&A strategy could dilute existing stockholders, and that issue may become important. Only time will tell to what extent Tilray will issue new shares, in order to raise its annual revenue to $4 billion. But TLRY stock is oversold following the selloffs in meme stocks and pot stocks, so it has more positive catalysts than negative ones.
TLRY Stock Is More Than a Bet on U.S. Pot Legalization
You can’t talk about Tilray without discussing its pot legalization catalyst. Other factors drove its turbocharged meme-stock rally from $19 to $67 per share last February. But it was the prospect of fast-tracked pot legalization that renewed interest in TLRY stock and similar plays. Of course, we’ve unfortunately not seen anything resembling fast-track legalization.
However, progress is still being made. For instance, the MORE act, a legalization bill which late last month cleared the House Judiciary Committee, is progressing. For the most part, only Democrats backed the legislation. Yet with two Republicans supporting the bill, support for legalization may be becoming more bipartisan.
As a result, Irwin’s prediction about pot being legalized on the federal level in two years may be right on the money. But investors are unfairly treating this stock as a pure bet on pot reform and focusing little on its other catalysts.
But, like Sundial Growers (NASDAQ:SNDL), Tilray has more going for it than just federal pot legalization. Even if Congress continues to make changes at a slow pace, the hard-hit TLRY stock may still rapidly rally.
Tilray’s Expansion Plans Could Also Change the Story
The end of the meme-stock bubble and the fading hope/hype around pot legalization are not the only reasons why TLRY stock has performed so poorly over the past eight months. The company’s underwhelming results have played a role as well.
However, despite its Q2 top-and-bottom line misses, the results included a few silver linings. For example, its recreational cannabis sales soared 77% year-over-year.
In addition, Simon, in a recent interview on CNBC, detailed the company’s expansion plans. First, it’s making a big push into the medicinal market because it has much higher margins than the recreational space. Second, it plans to continue making M&A deals, in order to grow its operations, slash its costs, and improve its profitability.
The M&A activity should reduce its per-unit costs, helping TLRY stock by adding to the $80 million of annual savings expected from the consolidation of Aphria into Tilray.
If the sales of Tilray’s medicinal and recreational pot businesses continue to grow quickly, much better results could be just a few quarters away.
Tilray Is Still Risky, But It Has Plenty of Positive Drivers
Again, the current owner of TLRY stock will probably get diluted, as its shareholders recently gave Tilray approval to issue more shares. Also, if pot is not legalized anytime soon, pot stocks may suffer another round of selloffs.
But with TLRY stock having two major, positive catalysts and its shares having given back all their 2021 gains, it may be time to buy time to buy Tilray.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.