Shares of Tilray (TLRY -9.47%) went up in smoke in June, losing 30.2% of their value, according to data provided by S&P Global Market Intelligence, after analysts slashed their price targets on the Canadian marijuana producer amid market turmoil.
There are significant headwinds confronting Tilray and other marijuana stocks, such that even the pot producer's strategic alliance with Hexo (HEXO) was rewritten to make the terms more favorable in light of market conditions and the possibility that pre-closing minimum liquidity conditions could not be met.
This isn't what it was supposed to be like for the marijuana industry after Canada legalized pot and numerous U.S. states followed suit. Although it's still considered a Schedule 1 controlled dangerous substance at the federal level, which does create certain difficulties to surmount, the expanding market was supposed to make pot producers profitable and prolific.
Instead they're struggling to stay afloat amid a mountain of bureaucratic red tape and higher costs due to marijuana's regulation.
Piper Sandler analyst Michael Lavery cut his price target for Tilray in half last month, dropping it to $3 per share from $6 per share, as he notes the marijuana stock is losing market share in the Canadian pot market, beer sales at Sweetwater Brewing are not taking off, and unfavorable currency exchange rates are creating significant headwinds. He did maintain a neutral rating on the stock, however.
While Canaccord analyst Matt Bottomley was a bit more charitable with his price target cut, lowering it from $9 per share to $7 and also keeping a buy rating on the stock, he downgraded Hexo from hold to speculative buy as its turnaround "continues to falter."
Tilray has all the assets to become a marijuana powerhouse. In addition to its cannabis and brewery businesses, it also owns Breckenridge Distillery, which features a wide selection of bourbons, whiskeys, rums, and vodkas, and Manitoba Harvest, which makes hemp granola and some cannabidiol (CBD) products.
These businesses were acquired with an eye toward federal legalization in the U.S. It also wanted to acquire Hexo but was rebuffed, and the struggles it continues to have make it seem as though Tilray investors dodged a bullet.
The problem right now is that federal legalization is so far on the back burner that Tilray seems to have few levers it can pull in the interim to spark any real growth. With Wall Street not seeing any hope for profitability on the horizon either, marijuana stock investors are not ready to jump on board.