Let's face it. There are lots of mistakes that you can make with investing. It's a lot easier to do something wrong than to do it right. 

Tilray (NASDAQ:TLRY) investors have certainly seen plenty of opportunities to mess up lately, especially with the stock experiencing huge swings both up and down on a frequent basis. But there's one mistake that Tilray investors can make right now that's the worst of all: believing the hype surrounding the stock.

Man hitting forehead with palm.

Image source: Getty Images.

AC/DC was right

AC/DC had it right when they sang, "It's a long way to the top if you wanna rock and roll." It's also a long way to the top if you want the world's premier cannabis business. At least it should be.

When Tilray conducted its initial public offering (IPO) back in July 2018, the company immediately became the third-largest Canadian marijuana stock in terms of market cap. That's not particularly shocking, considering that Tilray was already a leader in the medical cannabis market in Canada and had a solid presence in international markets.

But by early September, Tilray had leapfrogged over Aurora Cannabis to take the No. 2 spot. And only a few weeks later, it stole the top spot away from Canopy Growth (NASDAQ:CGC). Although Canopy briefly regained its mantle as the marijuana stock with the greatest market cap, Tilray is again on top.

Did Tilray open new facilities that gave it a higher production capacity than all of its rivals? Nope. Tilray will probably rank behind three other Canadian marijuana growers in terms of annual capacity through 2020. Did Tilray land a huge deal with a major company outside of the cannabis industry? No again. That honor goes to Canopy.  

So what fantastic business advances did Tilray make to climb to the top in such a short time? Hmmm, let's see... Tilray exported CBD oil to the United Kingdom -- to one patient. It received a green light from the U.S. Drug Enforcement Administration (DEA) to ship medical cannabis to the U.S. -- for one clinical study. Tilray exported CBD to Australia -- to three hospitals. All of these were positive developments, but they weren't add-billions-in-market-cap developments.

Neither was arguably the most important news for Tilray over the last several weeks: The company won approval to ship medical cannabis flower to Germany. This achievement made Tilray the first to be able to supply both cannabis flower and oils to the lucrative German market. As nice a feather in its cap as this is for Tilray, though, it wasn't really big enough to cause its market cap to vault to the top of the entire cannabis industry.

Tilray's CEO might be right -- years from now

Then-senator (and later U.S. president) John F. Kennedy won a Pulitzer Prize for his book Profiles in Courage. Tilray CEO Brendan Kennedy might deserve a "profiles in confidence" prize for his statements on CNBC in September. Some might argue the more fitting prize would be for "profiles in cockiness."

Brendan Kennedy told CNBC's Mad Money host Jim Cramer that Tilray's "intent is to build a company that dominates part of this $150 billion industry." He added that he thinks there will be "multiple hundred-billion-dollar companies" in the cannabis industry.

What's more, Kennedy was asked about the possibility of partnering with a major alcoholic beverage maker like Anheuser-Busch InBev (ABI). His response: "We don't want to partner with ABI. We want to build ABI."

It's true that some estimate that roughly $150 billion (or even more) is spent annually on marijuana. However, most of those sales are in the black market for recreational use of marijuana. So far, only two countries have legalized recreational use of marijuana at the federal level -- Uruguay and Canada.

More countries could legalize recreational marijuana, of course. But it could take years, maybe even decades, before there's a legal global marijuana market anywhere close to the $150 billion level mentioned by Brendan Kennedy. Arcview Market Research and BDS Analytics project that the global legal marijuana market will total around $32 billion by 2022. More than $23 billion of that amount will be made in the U.S. -- a market in which Tilray can't currently do significant business.

Kennedy's reference to a $150 billion marijuana market and multiple companies worth $100 billion or more, for now at least, is only hype. He also showed a bit of hubris, too. If Anheuser-Busch InBev approaches Tilray with a partnership deal along the lines of the one Canopy and Constellation Brands have, Kennedy would be crazy to snub the opportunity.

Reality vs. hype

Tilray investors, don't make a huge mistake. Ignore the hype. This stock doesn't deserve to have the top market cap in the cannabis industry. And the industry isn't going to be as big as Tilray's CEO says it will be for many years to come, if ever.

The reality for Tilray is that it is a leader in the global cannabis industry. Canada's recreational marijuana market presents a terrific opportunity for growth. So do international medical marijuana markets, especially in Germany and the U.K. There's a possibility that U.S. federal laws will change in a way that allows Tilray to expand into its southern neighbor.

But while the business prospects for Tilray are indeed very good, the stock has skyrocketed well above the company's realistic growth potential over the next five years (at least). Tilray's share price has soared primarily because of a high short interest and a low stock float. Those conditions won't be in place forever. And Tilray won't enjoy such a lofty valuation forever, either. Don't make the mistake of believing that it will.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.