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The success or failure of Tilray (NASDAQ:TLRY) depends on the trajectory of both the Canadian and U.S. cannabis markets. Unfortunately for Tilray and its stakeholders, at least one prominent Wall Street expert envisions a less-than-stellar future for the U.S. industry.
Just recently, Stifel analyst W. Andrew Carter made his position on the cannabis market crystal-clear. Carter stated that his firm continues to approach the cannabis sector with “negative overall bias.” This stance, furthermore, is issued amid a reduced outlook for the U.S. cannabis market and lackluster performance in the hydroponics sector.
Carter’s negative opinion is understandable. In the U.S., the federal-level cannabis-legalization movement is stalling out. Some folks might hope that the Marijuana Opportunity Reinvestment and Expungement Act, a.k.a. the MORE Act, will get passed. If that happens, cannabis would be removed from its Schedule I (i.e., federally illegal) classification.
The U.S. House of Representatives recently passed the MORE Act. However, the bill isn’t expected to pass successfully through the Senate. Therefore, federal-level U.S. cannabis legalization probably won’t happen this year.
Notably, Carter reduced his outlook for total 2022 U.S. cannabis sales from an earlier estimate of $28.6 billion, to $27.2 billion. The analyst cited oversupply, decelerating category growth and outsized pressure on lower-income consumer spending. On top of all those headwinds, Carter also observed rising input cost inflation and increased capital costs.
Moreover, Alliance Global Partners analyst Aaron Grey slashed his price target on TLRY stock from $8 to $5.50. Grey also reiterated his “neutral” rating on the stock.
Tilray CEO Irwin Simon is targeting $4 billion in revenue by 2024. However, as InvestorPlace contributor Muslim Farooque put it, Tilray is “still a long time from the $4 billion mark.”
Indeed, $4 billion sounds like a stretch as Tilray’s estimated 2022 revenue only stands at around $630 million. Besides, Grey observes that Tilray’s $4 billion-by-2024 objective “embeds a number of factors outside its control,” including the legalization of adult-use cannabis in the U.S.
All in all, macro-level cannabis-market factors don’t weigh in favor of an investment in Tilray now. It’s perfectly fine, then, to stay on the sidelines and see if Tilray actually gets anywhere near $4 billion in revenue.
On the date of publication, David Moadel 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.
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