Tilray (TLRY) ranked as the best Canadian marijuana stock by far in 2018. It's been a different story this year, though. And one analyst thinks Tilray will probably continue to lag behind its peers in 2019.

Investment firm Jefferies initiated coverage of Tilray last week with an "underperform" rating. Analyst Owen Bennett doesn't think that Tilray stacks up well against rivals Canopy Growth (CGC -1.73%) and Aurora Cannabis (ACB -1.19%). There were three specific reasons Jefferies gave a thumbs-down to Tilray.

A man gives a thumbs-down sign.

Image source: Getty Images.

1. Uninspiring approach to the recreational pot market

Bennett wrote to Jefferies clients that he doesn't think Tilray's approach to the Canadian recreational marijuana is "as well thought through" as Aurora's and Canopy's. So what is Tilray's approach to this market?

The company has signed supply agreements with seven of Canada's 10 provinces and two territories. Tilray is also in negotiations with two other provinces. That's not too far behind what Aurora and Canopy have accomplished. The company also has 10 brands targeted for the recreational pot market in Canada.

Tilray thinks its data licensing agreement with cannabis website Leafly will give it insight into the brands and products that Canadians prefer. This relationship apparently didn't move the needle for Bennett, though. 

In particular, Bennett doesn't think Tilray is well positioned for the cannabis derivatives market. Tilray did land a deal in December with Anheuser-Busch InBev to research nonalcoholic beverages containing tetrahydrocannabinol and cannabidiol (CBD). However, investors pretty much yawned when the partnership was announced because it was narrow in scope and didn't involve an investment in Tilray by the giant beermaker.

Check out the latest earnings call transcript for Tilray.

2. Limited production capacity

Bennett also singled out Tilray's production capacity. The company doesn't talk much about its capacity in terms of kilograms of cannabis that can be produced. However, Tilray has been quick to point out that it has 912,000 square feet of growing space.

But that square footage is a lot less than what either Aurora Cannabis or Canopy Growth have. Tilray at present probably can't even produce 100,000 kilograms of cannabis per year. A company can only make money from what it sells, so Bennett is right that production capacity is a limiting factor for Tilray's growth prospects.

It should be noted, though, that Tilray is beefing up its capacity. The company acquired Natura Naturals Holdings in February. The deal gives Tilray a 662,000-square-foot greenhouse facility, although currently only 155,000 square feet are licensed for production. In addition, Tilray has plenty of land available to construct new facilities. 

3. Unimpressive positioning for U.S. market

Bennett wrote to Jefferies clients that Tilray's "optionality in the U.S. is less impressive" than Canopy's and Aurora's. What did he mean by that statement?

It's likely that Bennett was comparing Tilray more to Canopy Growth than to Aurora Cannabis. While none of the companies can enter the U.S. marijuana market and retain their listings on major stock exchanges because marijuana remains illegal at the federal level, hemp is now legal in the United States.

Canopy Growth is investing between $100 million and $150 million in a major hemp production facility in New York state. So far, though, Aurora hasn't done anything to expand into the U.S. Bennett seemingly wasn't enthusiastic about Tilray's decision to acquire Manitoba Harvest, the largest hemp food company in the world, which already markets hemp CBD products at major retailers in the U.S. and Canada.

Piling on

Jefferies isn't the only naysayer when it comes to Tilray. The stock has a much higher level of short interest than either Aurora Cannabis or Canopy Growth does. 

My view is that much of the criticism of Tilray is fair. The stock's valuation certainly appears to be steep for Tilray's production capacity. On the other hand, Tilray has a strong management team that has made some pretty good deals, in my view. I suspect that the company is better positioned for the global market, including the U.S., than Owen Bennett suggests.

I think there are definitely better marijuana stocks than Tilray. But I wouldn't bet the farm against its success over the long run.