Chances are that investors would struggle to find a bigger (or buzzier) long-term growth opportunity at the moment than marijuana. Although black market cannabis sales continue to dominate, legal channel sales are soaring as new countries and U.S. states wave the green flag on medical marijuana and recreational pot.

Last year alone, legal weed sales surpassed $12 billion. But by the end of the upcoming decade, we could see worldwide cannabis sales regularly hitting $50 billion to $75 billion per year. It's this expectation of rapid sales growth that make pot stocks such an intriguing investment opportunity.

An up-close view of a flowering cannabis plant growing indoors.

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Among the most popular marijuana stocks is Canadian-based Tilray (TLRY), which made a lot of noise last year after its initial public offering on the Nasdaq. As the first cannabis company to IPO on the tech-heavy exchange, Tilray rapidly soared from its list price of $17 in mid-July to as high as $300 per share on an intraday basis less than two months later. Shares of the company have since cooled considerably, with its valuation falling more than 85% since its all-time intraday high.

The company itself has faced a laundry list of challenges over the past year. However, earlier this week, it removed one item on the list.

Tilray's shareholders no longer need to worry about a Privateer Holdings share dump

On Monday, June 10, Tilray announced that it would acquire private equity firm Privateer Holdings, the company's largest shareholder, in a downstream merger. Privateer, whose executive chairman, Brendan Kennedy, is also the CEO of Tilray, holds 75 million shares of Tilray stock, which currently equates to 77% of the company's outstanding share count.

One of the biggest prevailing concerns for Tilray as 2019 began was how the company would fare with its lock-up expiration approaching. For a period of 180 days following an IPO, insiders are legally disallowed from selling their shares. But when that 180-day period is over, which for Tilray was Jan. 15, 2019, it meant that tens of millions of shares could potentially be sold by insiders. Even though Privateer Holdings announced its intent not to sell any of its stake until the second half of 2019, at the earliest, moving 75 million shares at any point in the future was never going to be easy. In other words, Privateer's eventual selling of these shares was presumed to be a negative for Tilray's stock.

Two businessmen in suits shaking hands, as if in agreement.

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With the announcement of Monday's acquisition, Tilray has taken the bull by the horns and will now undertake an orderly disposition of these 75 million shares over a two-year period. As noted in the press release:

During the first year following the closing of the merger, shares will be released only pursuant to marketed offerings and/or block trades to institutional investors or via stock sales to strategic investors, all of which would be arranged at the sole discretion of Tilray. The remaining shares will be subject to a staggered release over the course of the second year following closing.

This move effectively puts Tilray in charge of its future, and it removes the potential for a surprise share "dump" by insiders. 

Tilray has far bigger problems than a lock-up expiration

While this does resolve a relatively small and near-term issue with Tilray, it does nothing to address the company's bigger problems. Namely, that its business plan completely shifted just a few months after Canada legalized recreational marijuana, and that it won't be profitable any time soon.

One of the biggest curveballs of 2019 might be Tilray's March conference call with Wall Street analysts following its fourth-quarter results. CEO Brendan Kennedy announced that Tilray would essentially de-emphasize further investments in Canada, and would instead focus on entering the U.S. market via hemp, as well as push into Europe to take advantage of medical cannabis expansion. Kennedy summarized the Canadian landscape as mostly overpriced, and in an interview in May criticized other growers, without naming names, for essentially lying about how much cannabis they could produce in order to support inflated valuations.

A visibly confused young man in a suit scratching the top of his head.

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While there are good reasons to expand into Europe and the U.S. markets, it's a really odd move for Tilray to de-emphasize the Canadian market just a few months after recreational weed became legal. Once viewed as a major producer in Canada, Tilray has only increased its global production capacity by roughly 150,000 square feet since filing its S-1 prospectus with the Securities and Exchange Commission one year ago. Even with perhaps 100,000 kilos of peak annual output, when at full capacity, Tilray isn't considered a top-10 producer at the moment.

Making matters worse, the company's lack of production has coerced it to purchase cannabis from third-party sources. This is a big reason behind its anemic gross margin of 20% and 23%, respectively, in the fourth and first quarters.

Because Tilray has chosen to completely alter its strategy to look beyond Canada, the company will be spending liberally in 2019. Acquisitions, such as its now-closed $310 million deal to buy North American hemp foods company Manitoba Harvest, will likely remain a steady part of Tilray's long-term strategy. All of this added spending means that Tilray's chances of profitability in 2020 have gone up in smoke.

Even its chief financial officer, Mark Castaneda, agrees. In a telephone interview with Bloomberg, Castaneda said, "If the world had stopped last fall, we had good visibility to having positive EBITDA at the end of this year, call it Q4 of this year... This industry changes so fast, and opportunities present themselves so fast." Now, Castaneda sees positive EBITDA at least another year away. And keep in mind that positive EBITDA doesn't necessarily mean net income winds up in the positive. 

Although Tilray does have a handful of notable partnerships with a Novartis subsidiary and Anheuser-Busch InBev, it's one of only a few major pot stocks that may not be profitable in 2020. When combined with a murky near-term strategy, Tilray remains a marijuana stock to avoid, even with its lock-up situation now resolved.