Tilray Brands' (TLRY 0.56%) management is very clear about where it plans to take the company over the next few years. It plans to become the world's leading cannabis business and make at least $4 billion in revenue before the end of its fiscal 2024. Beyond that, it's reasonable to assume that it would plan to remain a global leader while expanding its market share wherever it can.

But can it actually attain that goal? And if so, what will it look like just a little bit further out in time, in August of 2025? Let's investigate by taking a look at the most critical developments on the horizon that'll impact its ability to grow and its chances of success.

Where and when will cannabis legalization happen?

The biggest factor influencing where Tilray will be in late 2025 is the prospect of cannabis legalization in the U.S. and the E.U. But the stakes of legalization differ significantly for each locale. If marijuana is legalized for recreational purposes in the U.S., Tilray won't benefit very much, at least not immediately. 

Roughly a year ago, the company bought $165.8 million worth of senior secured convertible notes and warrants issued by MedMen Enterprises, a U.S.-based cannabis business. The notes can be converted into a 21% stake in MedMen, contingent on the U.S. legalizing cannabis federally. In other words, if the U.S. legalizes recreational marijuana in the next three years, Tilray will have a path to start competing in the market more or less right away. 

So three years from now, it might be doing just that, or it might be continuing to sit on the securities it acquired with little to show for it. Either way, investors shouldn't assume that the company is strongly positioned to succeed in the U.S. market. MedMen isn't profitable, nor is it quickly growing, nor does it have much cash in the bank that it could use to strengthen itself in the lead-up to legalization. Nonetheless, it'll bring in a bit more revenue, and the door will be open for further growth.

The picture in the E.U. is much more favorable. The company already has a subsidiary in Germany, and it holds 20% of the medicinal marijuana market there. It's already operating in the Italian and Polish markets, and it's also operating a major cultivation facility in Portugal, which it plans to use to export cannabis to other E.U. countries, thereby avoiding import tariffs and significantly improving its in-market unit economics in the process. There are also subsidiaries in place in smaller sub-markets like Malta and Luxembourg, though they won't be worth much revenue regardless of legalization.

Old problems will still probably need solving

Legalization in major markets would make Tilray into an even larger company over the next three years and beyond, but it wouldn't solve all of its problems, and it might actually exacerbate them. As of right now, it isn't anywhere close to being profitable, and it has $415.9 million in cash against its trailing 12-month operating expenses of $345.3 million. That's an issue that it will need to address before late 2025, and there are a few paths it can take to get there.

The first would be to simply take out more debt, which is what management will probably opt to do, assuming it can do so at an attractive rate. At the moment, its total debt is around $605.7 million, $92.6 million of which is due within a year. When paired with its unprofitability, it's likely that its interest rate on any future debt will be a bit higher than what it might prefer, which will be a slight drag on its long-term growth. 

The second option will be to keep cutting costs. Its current cost-saving campaign should yield $80 million in synergies over the next two years, leaving it free-cash-flow (FCF) positive by the end of its 2023 fiscal year, according to management. Those cuts won't be enough to make it profitable on their own, but they'll be more steps in the right direction. 

Therefore, by August of 2025 Tilray will almost certainly be bigger from the spoils of legalization, assuming it occurs somewhere, but its chances of being profitable are still somewhat slim. If the company can demonstrate improvements to its margin in the aftermath of legalization, and then continue to improve its margin while exploiting the newly opened markets, its stock will likely be a winner. In contrast, it wouldn't be too surprising to see its shares soar on news of legalization only to slowly crumble in the face of perpetually needing to raise more money, so investors should proceed with caution even if they're optimistic about the next few years.