When 2018 came to a close, it easily went down as the greatest year in history for the marijuana industry. Our neighbor to the north, Canada, became the first industrialized country in the world to legalize adult-use cannabis, the U.S. Food and Drug Administration approved the very first cannabis-derived drug, and President Trump signed the farm bill into law, making hemp and hemp-based cannabidiol oil perfectly legal. More was done to validate the pot industry as a legitimate business model than in any prior year.

Despite this, pot stocks themselves performed poorly. More than a dozen lost at least 40% of their value in 2018 in what should have been the best year ever for marijuana stocks. Of course, one marijuana stock bucked that trend in a big way, even though it was only a publicly traded company for about 5 1/2 months out of the year: Tilray (TLRY).

An up-close look at a flowering cannabis plant with a dark background.

Image source: Getty Images.

Does Tilray belong in your portfolio this year?

Check out the latest Tilray earnings call transcript.

After pricing 9 million shares at $17 in mid-July, Tilray's stock would go on to hit $300 just two months later on an intraday basis. Shares of the company ended 2018 above $70, making it a top second-half performer. Of course, the big question moving forward is: Should you buy Tilray in 2019?

Before revealing the answer, let's take a closer look by analyzing both sides of the argument.

Tilray belongs in your portfolio because it's hitting its stride

One of the more exciting reasons to invest in Canadian cannabis grower Tilray is that brand-name companies are really beginning to take note of its potential. In December, Tilray worked out a global distribution partnership for noncombustible, nonsmokable medical cannabis products with Novartis' generic drug unit Sandoz. This was actually not the first time the duo had worked out a deal, as Tilray and Sandoz have been working to get medical cannabis products into hospitals in Canada since March.

Just as exciting, Tilray announced a $100 million joint venture with Anheuser-Busch InBev (BUD 0.41%) that'll see each company put up $50 million to research and (likely) develop cannabis-infused beverages. North American alcohol sale growth hasn't been much to write home about in recent years, which is the impetus for Anheuser-Busch InBev to make this deal. As for Tilray, it'll bring its unique industry knowledge to the table while leaning on Anheuser-Busch's marketing prowess to push into new markets.

Potted cannabis plants growing in an indoor setting under special lights.

Image source: Getty Images.

Secondly, Tilray has an opportunity to become one of the largest weed growers in Canada. When the company filed its S-1 prospectus with the Securities and Exchange Commission in June prior to its initial public offering, it suggested that 912,000 square feet of facilities would be complete by the end of the calendar year. This included just over 850,000 square feet of growing space. However, Tilray has nearly 3 million square feet of additional land that it could use for capacity expansion. Even doubling its production capacity in 2019 would almost certainly slot the company in as the fifth-largest grower by peak annual production.

However, production isn't everything. Thankfully, Tilray has much to offer beyond just traditional dried cannabis. The company has made a concerted effort to diversify its product portfolio to include high-margin cannabis oils, as well as the noted deals, one of which could lead to infused beverages hitting the market later in 2019, assuming Canada's Parliament approves new consumption options beyond dried flower and oils.

And lastly, there's something to be said about Tilray's branding, which is perhaps matched only by that of Canopy Growth. Tilray's medical cannabis brands are among the most recognized in the country. With hundreds of pot products hitting pharmacy and dispensary shelves, Tilray is able to provide differentiation in an environment where very little currently exists.

This company could easily lose half of its value

Then again, there are a number of reasons why avoiding Tilray in 2019 might be a smart move.

For starters, Tilray's market cap of $7 billion values it as the second-largest marijuana stock. Yet, if its production capacity is compared to that of its peers, something is clearly amiss. Assuming Tilray stayed on track with its capacity expansion as predicted in its S-1 filing, it's likely only on pace for 75,000 to 80,000 kilograms in peak annual production.

Dried cannabis flower packed into multiple clear jars on a counter, with one jar tipped over.

Image source: Getty Images.

Meanwhile, Aurora Cannabis, which sports a market cap that's $2 billion lower than Tilray's, is expected to lead the industry with perhaps 700,000 kilograms of peak annual production, inclusive of its recent ICC Labs purchase in South America. While fully aware that sales aren't everything, and that Tilray's higher-margin product portfolio will make some difference in valuation, it still suggests that Tilray is nowhere near the output level of the industry's major growers.

Speaking of profitability, investors can pretty much kiss goodbye any chance of that happening when it comes to Tilray. This is a company that's going to be spending most of its capital on increasing production capacity, expanding into new markets, building and marketing new and existing brands, researching medical cannabis uses, and possibly making complementary acquisitions. All of these expenses will ensure that, no matter how quickly sales grow, Tilray will lose money in 2019, if not 2020 as well. Wall Street would normally overlook cannabis industry losses, but with Canada legalizing the drug in October, operating results actually matter now.

Another reason investors should be rightly skeptical of Tilray is the company's upcoming lock-up period expiration on Jan. 15, 2019. For 180 days following the company's IPO, insiders have been legally bound to not sell any of their shares. That all ends in a little over a week from now. Considering just how much Tilray's share price has appreciated since going public, insider selling seems probable.

A judge's gavel next to a small pile of cannabis buds.

Image source: Getty Images.

The verdict?

So, what's the best course of action for investors to take with Tilray in 2019?

On one hand, there are compelling reasons to believe that it'll be able to hang on to its premium given its ability to forge partnerships. Beverage, pharmaceutical, and tobacco companies are eager to take part in the pot industry's growth, and Tilray's well-known brands and potential to be a top producer offer plenty of incentive.

But it's difficult to justify the company's valuation considering that it has basically no chance of being profitable on an operating basis in 2019, and is quite a ways behind its similar-sized peers in terms of aggregate production. The end of the lock-up period is the icing on the cake that should have investors avoiding Tilray like the plague in 2019.