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With its share price down 92% since its 2018 market debut, and now trading as a penny stock, there doesn’t appear to be much hope left for cannabis producer Tilray Brands (NASDAQ:TLRY) stock.
Tilray is the largest cannabis producer in neighboring Canada and hopes ran high for the stock (pun intended). In October 2018, when Canada legalized cannabis use on a national level, TLRY stock was trading right around $150 a share. Today, you can purchase the stock for $2.30. The best thing that can be said about TLRY stock these days is that its a meme play and prone to being pumped and dumped by retail investors from time to time.
A Short Seller Report and TLRY Stock
Canada’s experiment with legalized cannabis has been a resounding failure. The legal market just hasn’t been able to compete with an entrenched black market for the recreational drug, where prices are lower and tax free.
As a result, all legal cannabis producers in the country have struggled and several have gone out of business. Tilray is no exception. The company has produced a steady string of ghastly earnings reports. In July, the company reported a net loss of $1.4 billion for its fiscal year 2023.
The mounting losses and poor outlook for the cannabis market have pushed TLRY stock deeper down on the penny stock league tables. At the same time, Tilray was hit with a scathing short seller report this past autumn.
Kerrisdale Capital accused the company of intentionally diluting its stock. In the highly critical report, it said Tilray: “[H]as resorted to ongoing, shameless, and massive dilution to stay alive, even as management compensates itself generously while operating metrics further deteriorate.”
Kerrisdale, which has a large short position in TLRY stock, goes on to say that the cannabis producer: “is just obscuring losses by issuing shares, instead of recording cash expenses, to one of its largest suppliers.”
Tilray’s share price fell 13% on news of the short seller report. Today, Tilray has the distinction of being the most shorted stock in the cannabis sector.
Strategy Shift
The U.S. market, which is over 10 times larger than Canada, remains the holy grail for Canadian cannabis producers such as Tilray. Besides a robust black market up north, Tilray has blamed its woes on the fact that U.S. lawmakers have not legalized cannabis nationally. That would open the market to foreign entrants, and provide TLRY some breathing room. However, Tilray remains focused on the U.S. and has shifted its strategy over the past year to build-up its business stateside.
Last spring, Tilray moved its corporate headquarters from Toronto to New York City as it tries to grow beyond cannabis. Then, in August, the company announced that it was buying eight craft beer brands from international brewing giant Anheuser-Busch InBev (NYSE:BUD) in an all-cash deal valued at $85 million.
The craft beer purchases make Tilray among the largest craft brewers in the U.S. Tilray now owns craft beer brands such as SweetWater, Montauk Brewing Co., and Alpine Beer, ranking it among the top five craft brewers in the U.S., according to the U.S. Brewers Association.
However, it’s not clear how or when the craft beer business will benefit Tilray’s bottom line or if it will be enough to stop the hemorrhaging from its cannabis operation. In October, Tilray reported financial results that showed a net loss of $56 million.
At the same time that it struggles to diversify, TLRY stock continues to be targeted periodically by the WallStreetBets crowd. Over the past year, the company’s stock appears to have been pumped and then quickly dumped on four occasions.
Stay Far Away From TLRY Stock
Tilray Brands faces a grim situation as its business and stock deteriorate, being classified as a meme stock. With the share price down over 90%, massive financial losses, a short seller report alleging misconduct, and a failed shift into craft beers, there’s no reason for investors to risk capital on this cannabis producer.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.