Tilray (NASDAQ:TLRY) stock has faced a steep decline, plummeting more than 99% from its $300 2018 peak. The Canadian cannabis market fell short of growth expectations, leading to challenges. Tilray is diversifying its business model with craft brewing ventures. With the stock trading under $2 per share, newfound delisting concerns that are plaguing the stock.
A recent authorization to create more shares hints at future offerings and potential further decline. Analysts project the company to stay unprofitable until at least 2026, presenting little incentive for investors to stay in this stock. Here are more reasons I think Tilray is simply a company that’s not worth the risk, even at these beaten-down levels.
This May Only Be a Decent Short-Term Play
Tilray has done its best to look for profits in other market segments. The company recently introduced a diverse range of cannabis-infused beverages and lager-based choices from its Mollo craft brewing brands. Blair MacNeil, Tilray Canada president, emphasized the company’s commitment to innovation and consumer satisfaction, solidifying its leadership in the cannabis beverage market.
The moves were met with market optimism and the stock spiked on other catalysts. That said, I think cannabis legalization in the U.S. may be further out than many investors think. Without meaningful movement, Tilray’s valuation is unlikely to be sustained due to weak Canadian market.
Despite diversifying, Tilray remains committed to expanding its cannabis-infused beverage offerings, responding to consumer demands. However, I’m of the view that while margins may be better for these beverages, volumes may not match up to expectations, leading to risks over overproduction (and underperforming margins) over the medium-term.
A Saturated Cannabis Market
Investing in U.S.-listed stocks offers many options, although the number has decreased over the years. With nearly 6,000 companies on Nasdaq and NYSE, putting a significant amount into a specific stock, like Tilray, may not be logical unless it constitutes a small part of your overall portfolio.
In 2020, Tilray aimed for growth through a merger with Aphria, becoming one of Canada’s largest cannabis firms. However, the scale proved excessive for the saturated Canadian market, leading to a massive oversupply of 1.5 billion in unsold cannabis inventory. Surplus caused price declines, increased losses, and bankruptcies in Canada.
Tilray emphasizes its dominant market share in Canada, repeatedly mentioning it in the Q1 2024 report. However, with the cannabis industry facing overproduction and a massive unsold inventory, this achievement fails to enhance profitability.
Additionally, Tilray’s status as the 5th-largest U.S. craft brewer, highlighted in the same release, is overshadowed by the craft beer industry’s recent decline in sales, as reported by the Brewers Association in the first half of 2023.
Avoid TLRY Stock Now
As mentioned, in 2020, aiming for growth, Tilray acquired Aphria, becoming the largest global cannabis firm. While size and scale is usually a good thing in most sectors, becoming the biggest player in a market that’s not only saturated, but growing slower than expected, isn’t necessarily a good thing. Add on share dilution from these deals, and investors have been left on the outside looking in.
Until something changes, I think it’s best for investors to look elsewhere for growth. There are plenty of other speculative stocks investors can lose money on, and I’d focus on those instead.
On the date of publication, Chris MacDonald 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.
