Analyst says 'don't bother' with pot stock Tilray, even after Trump's rescheduling

Investors should avoid shares of Tilray Brands, the Nasdaq-listed Canadian cannabis producer and distributor, despite their low price, Motley Fool contributor Prosper Junior Bakiny argues. The company’s financial results remain inconsistent, and even the easing of regulations in the U.S. market is unlikely to materially improve the company's performance, he writes.

Tilray shares have plunged nearly 97% over the last five years to about $5.50 apiece, but that alone is not a reason to buy them, Bakiny says. He noted that despite revenue growth, the company remains unprofitable. For the fiscal quarter ended February 28, Tilray’s net revenue increased 11% year over year to $206.7 million, while the net loss narrowed 97% to $25.2 million.

Many investors hope that easing regulation in the U.S. cannabis market could become a turning point for the company, the analyst said. In December, U.S. President Donald Trump signed an executive order to loosen marijuana regulations. Among other measures, the order directed the Justice Department to begin reclassifying cannabis from the strict Schedule I category, which includes heroin and LSD, to the less restrictive Schedule III category, alongside ketamine and painkillers containing codeine. On April 23, acting U.S. Attorney General Todd Blanche signed the corresponding order. Tilray shares subsequently fell nearly 12%. Since April 22, the trading day before the order was signed, the stock has dropped more than 30%.

Bakiny believes the reform is unlikely to materially affect Tilray’s business. He cites several reasons. First, the changes currently apply only to medical marijuana, not recreational cannabis. Second, Trump’s order does not legalize cannabis at the federal level – states still retain the authority to restrict its use. Third, shipping cannabis across state lines remains prohibited. According to Bakiny, this forces companies to cultivate and manufacture cannabis products in every state where they operate, which is “incredibly inefficient.” He describes this as a key reason why U.S. cannabis producers remain unprofitable. All of this makes him skeptical about Tilray’s long-term prospects.

Wall Street remains broadly cautious on Tilray: seven analysts rate the stock “hold,” while six recommend “buy.” The average target price stands at $9.72 per share, nearly 77% above the stock’s closing price on Tuesday.