Cannabis stocks have erased most of the gains made earlier this year as concerns about regulations continued. The AdvisorShares Pure US Cannabis ETF (MSOS) was trading at $7.08 on Friday, down by over 37% from its highest point this year.
Similarly, the Alternative Harvest ETF (MJ) has slipped by 26% from the year-to-date high while the AdvisorShares Pure Cannabis ETF (YOLO) has slipped by 30% from the YTD high.
Tilray Brands (TSX:TLRY) stock price has not been left behind in this retreat as it dropped by almost 40% from the YTD high and by over 90% from its all-time high. Other popular cannabis stocks like CuraLeaf and Aurora Cannabis (TSX:ACB) have fallen by double digits.
Regulatory clarity
Tilray Brands stock price jumped sharply earlier this year as investors cheered the regulatory clarity in the United States, one of the biggest markets in the industry.
At the time, Senator Chuck Schumer noted that the Senate would consider a bipartisan cannabis banking bill. That would be a good outcome for companies in the industry that have struggled to access banking solutions in the US.
While most states allow cannabis today, banking laws have not changed significantly in the past few years. As a result, it is still difficult for companies to access banking by large American banks. As a result, many small players still deal with cash and smaller banks.
The other big catalyst for the Tilray Brands stock was the decision by the Drug Enforcement Agency (DEA) to reschedule cannabis as a less dangerous drug. Such a move, if passed, would make it easy for people to consumer cannabis products in the country.
Meanwhile, Germany partially decriminalised cannabis in Germany, a move that many investors believe will lead to more profits in the country. In July, Tilray Brands received a new cultivation license in the country.
All these are positive moves for the industry. However, Tilray Brands and other companies have dropped because of the complexities of all these issues. Chances of passing a bipartisan cannabis bill in the US have faded recently since the US is moving to an election. At the time, I warned that the Tilray and cannabis rebound would be brief.
At the same time, Republicans have come out against the DEA rescheduling process. While Germany is a key cannabis market, chances that the industry will be sizable there are a bit limited.
Tilray Brands’ recent earnings
The TLRY stock price also retreated after the company published its fourth-quarter financial results. In a report, the company said that its revenue rose by 25% in Q4 to $229 million.
While this was a good growth rate, it was mostly because of its beverage division, whose revenue jumped by 137% to $67.2 million. These numbers included the revenues it made from the eight brands it bought from AB InBev in 2023.
Its cannabis revenue rose by 12% to over $71.9 million. These numbers mean that Tilray Brands is now not a pure-play cannabis company as it has expanded its business to other industries like alcohol and wellness. Its distribution business revenue dropped to $65.6 million while the wellness segment rose to $15.7 million.
A key challenge for Tilray Brands is that the company has struggled to become profitable. Its net loss narrowed to $222 million in 2023 and again to $15 million in the last quarter. It is still unclear whether the company will be able to operate its business profitably in the near future.
The average estimate is that Tilray Brands will have a loss per share of $0.04 in the current quarter followed by a similar amount in the next quarter. For the year, the company is expected to narrow its loss per share to $0.08 from last year’s $0.33.
Another concern about Tilray Brands is that it has been a highly dilutive company in the past few years. Its total outstanding shares have risen from over 450 million in 2021 to 831 million shares today.
An increase in the number of outstanding shares means that existing investors get diluted. It is the opposite of share repurchases, which boost shareholder returns by increasing the earnings per share.
Tilray Brands ended the last quarter with over $250 million in cash, equivalents, and market securities. Also, the company had over $252 million in inventories, a $52 million increase from the same period in 2023.
Tilray Brands stock price analysis
TLRY stock | Chart by TradingView
Turning to the daily chart, we see that the TLRY share price has moved sideways in the past few months. It has found a strong support, which is shown in purple. This support line connects the lowest swings since July last year.
Tilray Brands is consolidating at the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, the stock will likely remain in this range as investors wait for the next catalyst. More downside will be confirmed if the stock drops below the ascending trendline.
The alternative scenario is where it goes through a short squeeze because it has a short interest of over 14%. If this happens, it could rise to the key resistance at $2.20.
This article first appeared on Invezz.com
