Tilray Will Struggle Until the U.S. Legalizes Cannabis

  • Tilray (TLRY) continues to fall, down more than 72% in the past 12 months.
  • With the U.S. market closed to Canadian producers, the fortunes of TLRY stock look unlikely to turnaround anytime soon.
  • Avoid Tilray shares as Canada’s legal cannabis industry continues to struggle with poor sales, high taxes and a wave of consolidation.
In this photo illustration Tilray (TLRY) logo of a Canadian pharmaceutical and cannabis company is seen on a mobile phone and a computer screen.

Source: viewimage / Shutterstock.com

With the U.S. market remaining closed to Canadian cannabis producers, there’s no point in buying shares of Tilray (NASDAQ:TLRY). Year-to-date, TLRY stock is down 30% at $5.11 per share.

It might be the largest producer in the country in terms of revenue, but Tilray continues to struggle. With the Canadian market oversaturated, any hope of long-term growth remains dashed as long as the U.S. market remains closed to foreign entrants. Tilray has moved its global headquarters to New York City, but the symbolic gesture has done nothing to help the company’s shares, which continue to steadily erode.

TLRY Tilray $5.11

The Holy Grail for TLRY Stock

The U.S. market, which is more than 10 times the size of neighboring Canada, remains the holy grail for cannabis producers. The moment marijuana is legalized at the federal level, Canadian producers will be ready and able to swoop in, grab market share and dramatically boost their sales.

Expectations are high (pun intended.) The U.S. cannabis market tallied legal sales of $27 billion in 2021. That’s up 35% from 2020 as more states vote to legalize the drug for recreational use, according to cannabis trade publication MJBiz. Currently, more than 400,000 jobs in the U.S. are tied to the cannabis industry.

There have been some hopeful signs related to cannabis legalization in recent weeks and months. The House of Representatives passed a bill to decriminalize cannabis use. It also approved legislation to ease barriers to marijuana research.

At the state level, Maryland lawmakers put an adult-use marijuana measure on the November ballot, and New Mexico has started recreational sales. Currently, a total of 18 U.S. states have legalized cannabis consumption, along with Washington, D.C.

These developments help fuel the “not if, but when” hopes of Tilray and other Canadian cannabis producers who look longingly to the market south of their border. However, while the U.S. continues to inch towards greater acceptance and legalization of marijuana, any legislation is likely to die in the Republican-controlled Senate, as it has in the past.

With poll numbers showing Republicans are likely to retake Congress in the midterm elections this fall, federal-level cannabis legalization should not be expected to happen anytime soon. Until it does, Tilray and other Canadian producers are shut out of the American market.

Problems Up North

Back home in Canada, Tilray and other cannabis producers are struggling with tepid sales, high taxes, a robust black market and a wave of consolidation sweeping through the industry. Indeed, TLRY stock tanked after the company’s most recent earnings showed its share of the Canadian retail cannabis market fell to 10.2% from 12.8%.

The market share decrease was blamed largely on continued interruptions from Covid-19 lockdowns this past winter. But the excuses can’t hide the fact that the Canadian cannabis industry is in trouble.

The situation has gotten so bad that the federal government in Ottawa recently announced it is establishing an industry panel to help struggling cannabis companies and the sector as a whole. The measure comes after marijuana producers aggressively lobbied Canadian politicians to lessen the government red tape and taxes that are putting the legal industry at a competitive disadvantage with black market operators.

Sales tax of 15% or more is levied on cannabis retailers in Canada while, of course, no tax is applied to sales executed on the black market. Legal producers have been cutting prices and losing money as they try to compete.

Don’t Buy TLRY Stock

The Canadian cannabis sector is going nowhere fast, and so is TLRY stock. Until such time as the U.S. legalizes cannabis sales nationwide, producers such as Tilray will be left out of the market and continue to struggle in Canada.

With mixed earnings and a declining share of the domestic market, there’s no reason for investors to take a position in TLRY stock.

On the date of publication, Joel Baglole 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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


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