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Tilray Remains a Solid Pot Play

Tilray (NASDAQ:TLRY) stock has climbed since October, but it remains far below its past highs. After the Democratic Party’s “blue wave” in last year’s U.S. elections failed to result in  legalization, the retreat of Canada-based cannabis plays like TLRY stock makes sense.

photo of a hand holding a marijuana joint that is smoking against a green outdoor background

Source: shutterstock.com/Tunatura

Pot is now legal in dozens of U.S. states. But without changes in federal law, Canadian names like Tilray  can’t enter  the U.S., which could become the  world’s largest legal cannabis market. Before diving back into Tilray, Canopy Growth (NASDAQ:CGC), and others, investors are waiting for Congress to legalize marijuana.

Consequently, TLRY stock and its peers could continue to deliver mediocre returns in the near-term. Yet this “out of favor” status for the sector among Main Street and Wall Street investors may provide investors with a good opportunity. Despite doubts about whether U.S. legalization will ever occur, there’s a good chance that the drug will be legalized in a few short years.

Further, Tilray has some other possible, positive catalysts on the table. Although the shares may not rally for some time, you may want to take a bullish position in the name, since its share price is likely to undergo  an epic rebound.

Recent Pot Legalization News

Oddly enough, the most recent push for reform has come not from the Democrats, but from a Republican.

On Nov 16, Rep. Nancy Mace (R-SC) introduced a marijuana decriminalization bill. The bill would eliminate all  federal restrictions on the drug. At the same time, it would enable states to decide whether to legalize it.

This bill alone doesn’t signal that the Republicans are about to become as pro-pot as the Democrats. After all, the Republican Party in Mace’s home state of South Carolina has expressed its opposition to her bill. But Mace’s bill bolsters the argument that legalization is becoming more of a bipartisan issue. So no matter which party controls Congress after the 2022 midterm elections, marijuana reform is still just around the corner.

As  Tilray CEO Irwin Simon has said, legalization is far from a silver bullet when it comes to solving this company’s problems. Even if Congress legalizes the drug soon, Tilray’s financial results would not improve  tremendously for some time.

That said, progress towards legalization would cause a spike in its stock price. After the electric vehicle (EV) and related stocks went up following Congress’ passing of the infrastructure bill, popular pot stocks could embark on a similar rally if lawmakers  moves towards legalizing the drug.

Other Possible Catalysts Could Lift the Shares

Tilray’s  potential gains from pot reform may outweigh its possible drops. But among the Canada-based cannabis stocks, names like Sundial Growers (NASDAQ:SNDL) may be better ways to wager on this catalyst. With Sundial’s low stock price, it could spike more dramatically than Tilray on progress towards  U.S. legalization.

However, there’s more on Tilray’s side than just the prospect of it entering the American pot market within a few years. Other catalysts could help  its stock price rebound.

I discussed two of these catalysts when I last wrote about TLRY stock last month. First, the company plans to grow its share of the high-margin medical pot market in Canada and Europe. Second,  its strategy to buy  other pot companies could enable it to save money.

On top of this, the company could grow its exposure to the U.S. pot market while reforms are pending. It could do so  by making more deals similar  to the one it concluded with MedMen Enterprises (OTCMKTS:MMNFF) earlier this year. This complex transaction, which involved the use of convertible securities and warrants, gave it an economic interest in the U.S.-based pot purveyor.

The Bottom Line on TLRY Stock

It’s understandable why Tilray and its peers are still out of favor. But that doesn’t mean that the name will continue to underwhelm investors. The shares could spike on any legalization news. Or other parts of its game plan could become successful, enabling its share price to start rebounding.

With TLRY stock already beaten down, a shift in investors’ sentiment could enable it to pop tremendously  down the road. Before that happens,  bottom fishers may want to buy it.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/11/tlry-stock-while-still-out-of-favor-remains-solid-pot-play/.

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