Which stocks hold the potential of doubling this year? Many investors would probably put marijuana stocks high on the list. I certainly would.

Delivering a return of 100% or more within 12 months is a fantastic accomplishment. But one pot stock just pulled it off in only two weeks. Meet the marijuana stock that has already doubled (and then some) in 2021: Tilray (NASDAQ:TLRY).

White line with arrow trending up and a cannabis plant and $1 bills in the background

Image source: Getty Images.

A challenging 2020

I suspect that few investors would have picked Tilray a few months ago as the early winner among pot stocks in 2021. After all, the Canadian cannabis producer had a disastrous 2020.

Tilray's shares lost more than 50% of their value last year. The COVID-19 pandemic caused the stock to plunge in the first quarter. It also negatively impacted Tilray's sales, especially in the second quarter. The company reported that its overall revenue fell in Q2 compared to Q1. This decline stemmed primarily from lower Canadian recreational and medical cannabis sales related to the pandemic.

The coronavirus-related sell-off was difficult to overcome. Although Tilray's shares rebounded somewhat, they never came close to regaining the highs set earlier in 2020.

TLRY Chart

TLRY data by YCharts.

The company had more problems than just the pandemic. Tilray continued to lose money quarter after quarter. In May, the cannabis producer shut down its High Park Gardens facility to cut costs. It also issued more shares in March to raise additional cash, a move that further diluted the value of existing shares.

Behind Tilray's happy new year

By the first two weeks of 2021, though, Tilray stock had soared nearly 125%. Its shares are now up close to 140%. What changed for Tilray to make this such a happy new year? The seeds for the surge were planted in the final two months of 2020.

Most importantly, Tilray and Aphria (NASDAQ:APHA) announced on Dec. 16, 2020, that they planned to merge. The proposed transaction was an intriguing one. The combined entity will retain the Tilray name. However, Aphria shareholders will own 62% of the company, making the deal a reverse acquisition of Tilray by Aphria.

Investors didn't immediately react positively to the Aphria-Tilray combination. Tilray's shares continued to slide over the last couple of weeks of 2020. However, there was another catalyst on the way that was set up a couple of months earlier.

In November, no candidate in Georgia's two Senate races received more than 50% of the total vote. This meant that run-off elections were necessary for both seats and were scheduled for Jan. 5, 2021. Democrats won both races, giving their party effective control of the U.S. Senate in the process.

Canadian marijuana stocks, including Tilray, skyrocketed on the election results as investors are anticipating that a Democratic-controlled U.S. Congress will move toward decriminalization of marijuana at the federal level. Although this wouldn't mean national marijuana legalization in the U.S., as is the case in Canada, it would open the doors for Canadian companies to enter the lucrative U.S. cannabis market.

The following week after the Georgia run-off elections, Aphria announced record fiscal 2021 Q2 results. This provided another big boost to Tilray's share price.

What's next?

Aphria and Tilray must jump over a few hurdles before their merger is finalized. Both companies' shareholders must approve the transaction. Regulators in Canada, Germany, and the U.S. must also give their blessing to the deal. However, the two companies expect that the transaction will close in the second quarter of 2021. Assuming that happens, Tilray will soon become a much different -- and much bigger -- company.

Can the "new" Tilray double again this year? Probably not. Sure, the company's fortunes could be much greater if cannabis-reform legislation passes in the U.S. The prospects for federal marijuana decriminalization are better than they've ever been. However, optimism that Tilray could enter the U.S. market in the not-too-distant future is already partially baked into its share price. Still, there's a real possibility that Tilray stock could move higher, even after more than doubling so far this year. 

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.