Few cannabis stocks have fallen as hard as Tilray (NASDAQ:TLRY) over the past year, and that's saying something considering the sector has been beaten to a pulp recently. Tilray first rose to stardom after going public in July 2018, jumping from its modest $17 price per share at IPO to as much as $300 just a few months later.

It has been a straight descent into the abyss since then, though, with the company currently just a couple of bucks or so from its 52-week low. It may be tempting to see this prolonged slump as an opportunity, but it seems to me more likely that Tilray's troubles are indicative of much deeper problems, the kind that should have investors looking elsewhere.

Not an easy ride to the top

First and foremost, it is important to consider the future of the cannabis industry. Sure, it is one of the most promising industries you will find anywhere, as marijuana sales are expected to increase exponentially in the coming years.

Canada and Uruguay are still the only western nations in which recreational uses of pot are legal. Other countries will likely end up following suit, which should help catapult sales to ever greater heights.

However, while the industry itself is destined for greatness, there are several headwinds that could get in the way of individual companies. Consider the much-talked-about problem of a supply glut.

cannabis plant

IMAGE SOURCE: GETTY IMAGES.

Since the number of companies looking to cash in on the growth of the sector has ballooned in recent years, the market may end up with a supply of cannabis products that outweighs the demand, leading to a decline in per-gram prices and lower margins. In other words, Tilray and other pot companies may end up getting a much smaller piece of the pie than they had originally anticipated. The market was far too quick to factor Tilray's perceived future success into its stock price, and several factors within the industry -- be it a supply glut or some other curve ball -- could seriously delay, or even permanently hinder this success. 

Tilray's long-term potential

One could point to high-margin medical products (which are Tilray's main focus) as a way for it to profit from the cannabis market in spite of the ups and downs it may experience as it matures. With that in mind, here is a revised argument in favor of Tilray: The company has a hand in the medical segment and is looking to come up with innovative ways to profit from it, which could pay handsome rewards in a few years' time. 

There is some appeal to this line of reasoning. Tilray does have ties in the pharmaceutical field and is currently participating in medical trials involving cannabis. Further, the company's footprint extends to more than a dozen countries around the globe.

The prospect of these experiments bearing fruit, coupled with Tilray's distribution channels via its partnerships in the pharma space and its international presence, sounds appealing. But here's the problem: At this point, rosy promises have long stopped being genuine substitutes for actual results for marijuana companies. 

Besides, the question isn't just whether Tilray can be a winner in the long run; it is whether it can outpace its competitors, which would justify its comparatively higher price tag and valuation metrics. And while some of Tilray's peers have managed to land partners with deep pockets, the company has yet to do so. This means some of its competitors have more money to invest in various high-margin opportunities. 

One company in particular I think presents more attractive prospect than Tilray is Charlotte's Web (OTC:CWBHF) which is currently the leader in the lucrative U.S. CBD market. Charlotte's Web has a far-reaching presence in the retail market due to deals it signed with such retail giants as CVS Health and Kroger which puts it in a prime position to profit from the growth of this segment. Further, the Colorado-based company routinely turns in profits, and offers valuation metrics that compared favorably to those of Tilray. Charlotte's Web price to sales of 14.85 seems a bit high, but Tilray's 24.68 is even higher.

Tilray could certainly end up coming out ahead of Charlotte's Web and most other pot companies, but as things stand, such a bet seems a bit too speculative. 

Key takeaway for investors

If Tilray's stock price drops even lower, the company will become more attractive. After all, there is still some hope Tilray could turn things around. But as long as there are other pot stocks that are cheaper and have more attractive valuations, with prospects that rival those of Tilray's, it is, in my view, difficult to justify investing in the company.