Every investor would love to watch one of their stock holdings expand from a relatively small position to a million-dollar-plus value. But gains like that don't happen often -- and they're even less likely to happen to you if you don't start by picking some companies for your portfolio that have significant growth potential.

One sector that's full of that type of potential? Cannabis. According to research company BDSA, the global legal cannabis market will be worth $55.9 billion by 2026. To reach that size between now and then, it will have to grow at a compound annual rate of more than 17%.

Trimming a cannabis plant.

Image source: Getty Images.

Tilray (NASDAQ:TLRY) could benefit from a lot of that growth. It's already one of the top cannabis companies in the world, and once its merger with Aphria (NASDAQ:APHA) is completed later this year, it will become even bigger. But could investing in Tilray make you a millionaire?

How Tilray could make you rich

Tilray may have already made some millionaires back in 2018 when its stock (briefly) skyrocketed from below $25 a share to above $200. Investors jumped on the stock following news that the company had obtained approval from the Drug Enforcement Agency to import cannabis into the U.S. for a medical study. But the hype was short-lived, and Tilray's stock slid from that peak as investors realized that didn't mean the company was actually going to import and sell pot in the U.S. market.

Today, the stock is nowhere near those levels. In fact, after languishing in the single digits for much of 2020, it's now trading at about $24 -- in the same neighborhood where it was in the summer of 2018 prior to the aforementioned surge.

However, marijuana reform continues to make progress in the U.S. Four more states passed legalization referendums in November. In Virginia, a bill that will legalize pot for recreational use in 2024 awaits the governor's signature, and New York's legislature is also considering its own bills this year. As such, there could continue to be lots of bullishness in the sector. 

Year to date, shares of Tilray are already up around 200% -- dwarfing the gains of the sector-benchmark Horizons Marijuana Life Sciences ETF, which is up 57%. And if you measure from the start of November 2020 -- just before the U.S. election -- Tilray's stock is up by more than 320%, while the Horizons ETF has doubled.

The apparent takeaway from this is that signs of progress on the legalization front, rather than strong sales and profit numbers in the near term, will be what lifts cannabis stocks into the stratosphere. And now that Tilray is merging with Aphria, it will become the largest cannabis company in Canada. It could have the most to gain if the U.S. legalizes marijuana (with the possible exception of Canopy Growth, which has a tentative merger deal arranged with Acreage Holdings that is contingent on U.S. federal legalization).

Over the trailing 12 months, Canopy Growth generated 506 million Canadian dollars in revenue. However, Aphria alone generated CA$602 million over its last four quarters. When that's added to Tilray's revenue of roughly CA$265 million, the combined entity will be far ahead of what used to be the largest cannabis company in Canada.

If the U.S. legalizes marijuana, top cannabis stocks like Tilray will take off.

But the stock isn't a risk-free investment

The problem right now is that the euphoric rise of pot stocks, particularly Canadian ones, in the wake of the U.S. election seems to suggest a high degree of optimism surrounding legalization's prospects. Consider that Canopy Growth CEO David Klein is so confident that he went as far as to say publicly that he expects his company will likely be operating in the U.S. this year

Yet despite those lofty expectations, the most that President Joe Biden has hinted at in the past is that he favors decriminalizing marijuana, not fully legalizing it. And decriminalization on its own won't be enough to let Canadian cannabis producers sell their products in the U.S. 

If investors get concerned that legalization isn't going to happen in the near future, Tilray and other Canadian pot stocks could quickly give back much of their recent gains. Without the updraft of marijuana legalization hype lifting the price, Tilray shares are unlikely to make any retail investors into millionaires.

Also worth noting: While Tilray will boast that it hit its target of adjusted EBITDA profitability in the fourth quarter, that isn't its true accounting income. Over the past four quarters, the company has amassed net losses of more than CA$340 million. And while Aphria also posted an adjusted EBITDA profit for the seventh straight quarter when it released its fiscal second-quarter results on Jan. 14, its net loss over the six-month period ending Nov. 30 stood at CA$125.7 million.

The reality is that these still aren't truly profitable businesses, and they are relying on non-GAAP numbers to make their cases to investors. This is why I am not bullish on their results or their share prices.

Should you invest in Tilray?

If I thought investing in Tilray would make me a millionaire, I would have bought shares in it already. But I haven't. That's partly because I'm not confident that full legalization of recreational marijuana will take place in the U.S. during the Biden administration. The cannabis industry has a way of getting ahead of itself on the optimism front, which can do more harm than good over the long run as it inflates expectations.

If you want to invest in the U.S. pot market, you are probably better off picking up shares of a multistate operator that already has a strong presence in it. CuraleafCresco Labs, and Trulieve are just some examples of companies that are already dominating the industry.

Tilray may generate some good returns over the long run, especially if it and Aphria can continue to strengthen their top and bottom lines. But if you are expecting this stock to turn tens of thousands of dollars into a million or more, you will likely be disappointed.

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.