Down 66% From Its High, Can Tilray Brands Stock Turn Things Around?

Investing in the cannabis industry comes with significant risks, and you need to be prepared for a lot of volatility. Tilray Brands (NASDAQ: TLRY) is a prime example of why that is.

Although it's a leading cannabis producer in Canada, it has been anything but a good buy over the years. It's down more than 91% over the past five years. Although it was rallying earlier this year based on hopes related to easing restrictions on marijuana, it's now down 66% from its 52-week high.

Is there a bullish case to be made for the pot stock, and is a possible rally just around the corner, or is this simply a stock you should avoid?

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Hopes for marijuana rescheduling no longer boost Tilray

A few months ago, hopes were high that the U.S. government would move toward rescheduling marijuana so that it isn't classified as a Schedule I substance, which is the category for heroin and LSD. If moved to Schedule III, as was rumored might be the case, then that would open up opportunities to research marijuana more easily and alleviate tax burdens for multistate operators.

When optimism was growing that changes could happen, Tilray's stock surged, even though technically they wouldn't help the company since it's a Canadian-based business that doesn't sell marijuana in the U.S. (Rescheduling marijuana would signify progress, but it's not legalization.) However, any positive marijuana-related news often lifts up the entire industry, and with Tilray being a leader player, it often experiences the biggest gains.

Nothing has happened in recent months, and that has let the air out of the company's recent stock rally. At one point, it was up around 60% for the year. Now, however, it's back down to a decline of more than 40%, just like last year.

The company isn't making enough progress to win over investors

For years, Tilray has talked about its huge opportunities. In 2021, CEO Irwin Simon outlined a plan for the cannabis producer to hit $4 billion in annual revenue by 2024. It hinged on not only a legal U.S. market but also significant expansion in other international markets.

The company hasn't come anywhere near that target. Its revenue over the trailing 12 months has totaled just $831 million. Even if you exclude the impact of U.S. legalization, management still forecasts that it would get to billions in revenue in markets outside the U.S.

The business may claim progress nowadays by trimming its cash burn, but the reality is that it has built up sky-high expectations over the years, only to end up disappointing shareholders later on. The progress it has been making is minimal in relation to the rosy outlook it has provided in the past, and many investors are simply not falling for it anymore.

Investors shouldn't count on any sustainable turnaround

Tilray is a highly speculative stock, and its financial results aren't great. The company isn't generating much in the way of organic growth, and it continues to incur operating losses despite cutting back on expenses.

I wouldn't rule out a possible rally for the stock if there's any positive marijuana-related news in the near future. And with speculative stocks, you can never count out the possibility of a sudden surge in value. However, just like with the company's short-lived rally from a few months ago, I wouldn't count on any catalyst keeping the stock up for long.

Ultimately, there are just too many reasons to keep a safe distance from Tilray stock since it's full of risk and wouldn't be suitable for most investors given its volatility and unpredictability.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.