New Trade for November 1st, 2022

In 2017 and  2018, investors piled into cannabis stocks as word spread of the “next big thing.” Emerging players spoke of big plans, which stoked investor enthusiasm.  Amid the initial excitement, legislative progress was slow, and competition in the stifled marketplace kept prices low. 

The cannabis industry may not have been the explosive growth opportunity that early investors had anticipated, but there is still tremendous long-term upside.  37 U.S. states and four U.S. territories have laws that permit the use of marijuana.  While it is still  illegal on a Federal level, President Biden’s pivotal proclamation on October 7th included a request for the attorney general “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”  Many see this as a significant step in the right direction, but it’s expected to be a slow road. 

No one can predict when the big legislative changes will occur or how taxation will affect costs.  Still, with most stocks from the space down 50% or more from their highs, it’s hard to see tickers from the cannabis industry with staying power as anything less than an opportunistic bargain.  Our recommendation for today is a company with a solid presence in all key marijuana markets that seems deeply oversold at its current price.  

The potential legalization of cannabis is likely to be a major positive catalyst for the leader in net cannabis revenue, Tilray (TLRY).  The company has a presence in all key markets, with a focus on recreational and medicinal cannabis, the addressable market is significant and expanding. 

Following the pivotal Whitehouse announcement, TLRY surged 22% but gave back some of those gains when the company reported Q1 2023 revenue and EPS misses, finishing the week 14% higher.  The company has its sights set on Revenue of $4 billion by 2024, a realistic target if regulatory hurdles wane.  At $3.17 per share, TLRY currently trades at -8.5x forward earnings.   The stock remains deeply oversold and is worth buying even after the recent uptick.