What happened

There's a budding stock market rally among marijuana stocks Tuesday morning, with shares of Tilray (TLRY -2.48%) rising 8.5% in 10:40 a.m. ET trading, Aurora Cannabis (ACB -1.52%) up 9.1%, and Canopy Growth (CGC -2.27%) doing best of all -- moving 13% higher.

Marijuana investors may have Tilray to thank for all this -- Tilray, and Jefferies & Co., too.

So what

It's a slow news day in general for the marijuana industry, with little new having happened since Tilray reported its earnings last week -- or rather its losses. Tilray reported a $458 million quarterly loss despite growing its sales 8% year over year.

No matter, though. After taking a few days to digest the news, yesterday analysts at investment bank Jefferies & Co. announced they see "signs of Canadian improvement" in Tilray's results. (Thanks to our friends at TipRanks for providing a copy of the note.) The news wasn't quite good enough to net Tilray an upgrade -- indeed, Jefferies trimmed its price target by 23% and now values Tilray stock at $9.30 per share.

Still, even that lower price target implies nearly 150% upside in Tilray shares from today's prices, and Jefferies reaffirmed its buy rating on Tilray stock for this reason.

Now what

Why might investors be thinking that a buy rating for Tilray is good news for Aurora Cannabis and Canopy Growth as well? Well, in addition to saying a lot of nice things about Tilray in particular -- praising its "industry-best" international position in marijuana sales, for example, and its expansion of hemp sales in the U.S. -- Jefferies also noted that after two straight quarters of sequential declines in recreational marijuana sales in Canada, Tilray finally lit up some growth in fiscal Q4 2022.

That simple observation appears to have sparked today's market rally in marijuana stocks, but be warned: It's not as good as it sounds. Jefferies noted that Canadian cannabis sales appear to have grown 4% sequentially last quarter. However, this was after two double-digit sequential declines in Q2 and Q3, when sales fell 27% and 13%, respectively.

Simply put, marijuana sales are still in a funk in Canada, and this is a pretty deep hole that Tilray is only just beginning to climb out of. With $477 million in trailing-12-month net losses, this company remains far away from profitability. With $1.2 billion in losses, Aurora Cannabis is in even direr straits.

Meanwhile, with losses of only $302 million over the past year, Canopy Growth looks better off than its rivals -- but that's not saying much. Taken as a whole, this industry remains far from red hot, and it could still flame out in dramatic fashion.