Tilray stock price has surged in the past few weeks, with most of the gains happening on Monday when it surged by over 60%, which brought its market capitalization to over $2 billion. It has now soared by over 440% from its lowest level this year.
Why the Tilray stock price has soared
Tilray Brands is one of the biggest and most popular companies in the cannabis industry. It is a Canadian company with operations domestically and in other countries like Germany and the United.
Tilray Brands has diversified its business in the past few years as the cannabis business has become highly concentrated and risky. Its main diversification approach has been to move to the alcoholic beverage industry by buying several beer brands from companies like Molson Coors and AB InBev.
Tilray stock price has soared in the past few months because of Donald Trump who has hinted that he will be open to changing the classification of cannabis to a less dangerous drug.
TLRY stock continued soaring on Monday after he posted a video promoting cannabis use for seniors and Medicaid coverage of CBD products. He noted that the use of these products was a game-changer in pain relief for senior citizens.
Analysts and investors interpreted that to mean that he was leaning towards accepting the reclassification of cannabis, a move that would make it easier for companies in the industry to do business across states in the country.
Still, it is unclear whether Trump, a Republican, will be the one responsible for this reclassification since it will find pushback. Some popular people in the party like Tucker Carlson and the Late Charlie Kirk have all opposed any change of the classification.
Tilray Brands is facing major headwinds
A change of classification would be a good thing for companies in the cannabis industry. In particular, it would benefit Tilray Brands as it would make it easier to expand to the United States, where it does not offer cannabis products.
However, the reality is that Tilray’s business is facing major headwinds that will impact its stock price once the reclassification noise fades.
The first one is that the beer business it is expanding in is not doing well as many young people are not drinking as heavily as the older generation. That explains why beer stocks have plummeted in the past few months.
Molson Coors stock has plunged by 20% in the last 12 months as the S&P 500 Index has jumped to a record high. Similarly, Boston Beer stock is down by 25%, while AB InBev has fallen by 10%.
The most recent results showed that the company’s beverage revenue in the fourth quarter dropped to $65 million from $76 million, while the gross profit plunged to $25 million from $40 million.
Tilray’s cannabis revenue also plunged to $67.8 million from $82.4 million as the company paused selling its infused pre-roll and vape product, which were affecting its margins.
The other major headwind is that Tilray Brands continues to make substantial losses. It lost over $1.2 billion in the last quarter, with some of this being the write-off of its Aphria buyout.
The other main risk is that Trump may not change the reclassification as many analysts were expecting as Terrance Cole, the DEA administrator, has not commented about this. Trump is known to change his mind regularly and may do so on this
TLRY stock price analysis
The daily timeframe chart shows that the TRY stock price has surged in the past few months, moving from a low of $0.3446 in June to $1.85 today. It has moved to the highest level since August last year.
The stock recently formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) have crossed each other. Also, the Relative Strength Index (RSI) has jumped to the overbought level at 49.
Therefore, the most likely scenario is where the TLRY stock price rises amid the Trump reclassification thinking process and then retreats sharply to below $1 as its risks rise.
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