The outcome of elections can shape policies and decisions for years to come, and it’s no exception in the U.S. Following Donald Trump’s election as the 47th president of the United States and Republicans gaining control of the Senate and the House of Representatives, some companies and industries could potentially benefit from the change in administration at the national level. Others, not so much. One industry that potentially stands to lose is the cannabis market. And as one of the leaders in this space, Tilray Brands‘ (TLRY 2.29%) prospects could take a hit.
Tilray is banking on legalization
The cannabis industry has faced significant challenges since Canada legalized recreational use of marijuana in 2018, from fierce competition to stringent rules to operate in the sector. Companies in this space have, by and large, performed terribly. Tilray is no different. The company’s revenue and earnings — or lack thereof — have been inconsistent at best.
TLRY Revenue (Quarterly) data by YCharts.
And to the extent that Tilray’s top line increased at a good pace in some quarters, much of it was due to acquisitions. That’s why the company decided to diversify away from its Canadian cannabis operations, notably entering the beverages market. Thanks to a series of acquisitions, Tilray is now the fifth-largest craft brewer in the U.S.
The company hopes to eventually combine these two markets if cannabis legalization happens at the federal level in the U.S. In fact, Tilray’s CEO, Irwin Simon, said, “Upon legalization [in the U.S.] one day, we will infuse these drinks with THC, with CBD, but we’ll have the distribution, and we’ll have the brands when and if legalization does happen.” There could be a lot of money to be made here, but not anytime soon.
States reject legalization measures
On election night, three states had the opportunity to legalize adult recreational marijuana use: Florida, North Dakota, and South Dakota. All three states rejected the measure. For what it’s worth, voters in Nebraska voted in favor of legalizing pot for medical use, but that’s cold comfort for Tilray and its peers. Individual states rejecting the opportunity to legalize recreational cannabis won’t matter even if the substance wins at the federal level.
But that now seems less likely to happen in the near future. Florida, North Dakota, and South Dakota all voted red during the election. This highlights an important point: Republicans are less likely to support legalization. A Gallup poll conducted last year found that 55% of Republicans are in favor. The national average is 70%. Among Democrats, it’s 87%.
In fairness, President-elect Trump, a resident of Florida, said he would support legalization in his state. However, he has also opined that it should be a state issue, which means he wouldn’t necessarily support a federal law to that effect.
Tilray Brands isn’t worth the trouble
Tilray’s prospects don’t rely solely on the U.S. market. The company has made progress in Germany, for instance. However, the U.S. space is the most lucrative, and the cannabis grower’s plans in the country aren’t looking so good now. Where does that leave Tilray? Most likely worse off than it was before the election, and things were already bad. Don’t expect Tilray to bounce back from the struggles it has faced in recent years.
The company’s financial results will most likely remain unimpressive. Stock market performance should follow the same path. In short, Tilray isn’t an attractive stock pick right now. Investors should stay a safe distance away.
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