There was no spark and no flame in Tilray Brands (TLRY -2.92%) stock on Friday. Shares of the Canadian marijuana company traded flat across the trading day, missing out on a wider market rally that saw the S&P 500 index gain 1.4%. An analyst's downgrade was the buzzkill affecting sentiment on the shares.
That morning, Benchmark prognosticator Mike Hickey reduced his recommendation on Tilray stock. He now feels it's a sell, at a price target of $3. Previously, Hickey's recommendation was hold.
The analyst is particularly concerned with Tilray's business in its native country. Canada's marijuana industry continues to be plagued with heavy competition including black market competition and weakening prices, among numerous other challenges. And at the moment there is little opportunity in markets abroad, as recreational marijuana typically remains illegal throughout the world and medical use is often heavily regulated.
Hickey also feels that Tilray's move into higher-end cannabis isn't a very viable strategy. "We are not convinced that TLRY can grow premium cannabis at scale in Canada and expect that its resource allocation to premium cannabis cultivation will either fail outright and/or oversupply the market causing pricing pressure in the connoisseur flower segment," he wrote in his research note explaining the downgrade.
The great hope of the moment for Canadian weedies like Tilray is the complete opening of the U.S. market, which would open vast opportunities for every North American pot company. That, however, looks like it will continue to occur on a state-by-state, rather than federal, basis for the time being. Hickey's assessment is rather downbeat, but unfortunately it's convincing given present conditions.