Tilray Brands (TLRY) has been getting high lately. And that’s not at all a pot pun. You might say I “rescheduled” my priorities in shifting research to this hot company. Because that’s the key word that could eventually take TLRY to a two-digit stock price for the first time since the end of 2021.
Rescheduling is what they call it when a substance like cannabis, the core of TLRY’s business, changes classification. The U.S. Drug Enforcement Administration (DEA) is strongly considering moving cannabis from Schedule I to Schedule III. That means instead of being considered in the same class as heroin, it would be on par with things like Tylenol with codeine, and anabolic steroids.
TLRY owners are concerned with making money on a cannabis stock. That could be a lot easier if this rescheduling goes through. Because it allows a company to deduct more expenses from revenue, leading to higher profits.
That said, cannabis is still a nascent industry, particularly in the U.S. Canada’s legal structure has traditionally been friendlier, and that’s why most ETFs devoted to this industry are filled with Canadian companies.
Tilray is one of the more visible public companies in the cannabis business, and as we know, the rumor can be more powerful and profitable to investors than the actual news. So the possibility of rescheduling could be the driver for trading profits.
Ultimately, even if that were to occur, there's still a business to analyze here. So let’s do that.
A High-Level View of Tilray Stock
First, the chart shows that this stock, on a price-only basis, has a ton of upside potential. It has run away recently, but there’s still plenty of gap to fill.
This is still a very small public company, at under $2 billion in market capitalization. TLRY did more than $200 million in sales last quarter, and is not heavily owned by institutional investors. That opens the door for retail investors to impact the stock price more.
That’s one reason the beta is nearly 2x, which means TLRY is about twice as volatile as the broader stock market.
We see here that the stock is way down, even with its recent move from mere pennies to over $1 a share this year. And that revenue growth is very strong. Think back to the rescheduling situation, and how that could potentially raise profits to keep a better pace with revenue growth. That’s a catalyst right there.
TLRY Option Strategies: Roll Your Own
Considering that I often pay more per contract for options than the current price of TLRY common stock, this is a strange scenario. But there’s plenty of liquidity here, and many possible routes.
For a collar, here’s one with a low cost in percentage terms, positioned for 4:1 upside to downside, and that upside is more than double the current price. That’s possible when we look out as far as I did here, to January 2027.
For a shorter term and more speculative trade, here’s an example of a straight call purchase. The stock only trades around $1.50 per share, but this indicates we can risk just $0.25 a share, and have full upside participation in TLRY stock above $2 a share. If you are one who thinks recent momentum will continue, that’s a nice tradeoff.
TLRY is an intriguing stock in an industry which is clearly undergoing change. If it goes all the way to Schedule III status, this industry could be more mainstream, more profitable at the individual company level, and for traders and investors as well.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
