Why Tilray Stock Plunged Today
Key Points
A major event that would have greatly aided pot stocks didn't occur, as some pot bulls had hoped.
This followed media reports late last week that President Trump would sign an executive order starting the process of de facto legalization.
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A sharp pull-back in marijuana stocks dinged the value of Tilray Brands (NASDAQ: TLRY) shares on Monday. At the end of last week, investor hopes rose that President Donald Trump would take an important step toward the de facto legalization of the drug, but those hopes didn't materialize on Monday. Investors eagerly sold out of Tilray, leaving the stock with a 10% loss that trading session.
Awaiting a signature
Pot stock bulls came out in force at the end of last week, excited about several reports in The Washington Post stating that Trump is expected to sign an executive order (EO) directing the Justice Department to begin rescheduling the drug.
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The Drug Enforcement Administation (DEA) classifies drugs in a series of five "schedules," and marijuana is currently in Schedule I -- the list of most harmful drugs with the least medical value. The rescheduling would knock it down to Schedule III, a grouping that includes Tylenol, defined by the DEA as containing substances with "moderate to low potential for physical and psychological dependence."
While the article did not specify a timing for Trump to sign the EO, judging by the price leaps in weed stocks on Friday, many investors assumed this would be imminent. That was a major reason for the Monday pull-back.
Still in limbo
This is only the latest piece of proof that the market likely won't ever be comfortable with cannabis stock until rescheduling occurs. At the moment, marijuana legalization is a confusing patchwork in this country, with some states legalizing both medical and recreational pot, some only medical, and some neither of the above.
Additionally, the drug's current legal status blocks weed companies from even basic financial services; de facto legalization would alleviate that.
Given that, we shouldn't trade such stocks based on possibility. If Trump is indeed willing to get the rescheduling ball rolling, it's best to wait until he signs the actual EO. Everything else has to be considered speculation.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
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