At the moment, Tilray Brands (TLRY 2.52%) isn't a stock that's an obvious buy, as the cannabis industry is getting punished by the bear market and price compression with no relief in sight.

The stock is far too risky for most investors to buy today due to the range of headwinds it faces. But, those who can accept a ton of risk could see huge gains within the next five years if they buy a few shares, assuming the company manages to squeeze the most mileage it can out of the three beneficial factors we'll discuss in just a moment. Here's why.

1. It has tariff-free access to the EU market

As a company that aspires to be the largest marijuana business in the world, Tilray's cultivation, manufacturing, distribution, and retail operations are scattered around the globe, with the largest concentration of its resources located in North America and the European Union. The decision to compete in the EU is no accident even though the region has yet to implement any cohesive marijuana legalization policies, as the market is expected to grow to reach $3.9 billion by 2025. With its production facilities on the continent concentrated in Portugal, the company can export marijuana grown there to other EU countries without tariffs.

That's favorable because it means Tilray will have lower costs in the EU market compared to other North American cannabis businesses that might want to compete there. Competing in Europe could also help to offset its shrinking market share in Canada, its home market, especially if the tax regulations end up being more favorable.

Since the prospects of marijuana legalization in the EU are only getting more likely over time, it'll be well-positioned whenever that happens. But even if broad legalization is a ways away, it can still serve the medicinal markets more efficiently. And that kind of preliminary competitive advantage could become quite a formidable driver of returns in the long run. As of mid-March 2023, Germany is planning to introduce a bill in the coming weeks which would legalize cannabis, so investors may not need to wait all that long for a piecemeal but significant expansion of Tilray's market.    

2. Its cannabis production efficiency is improving

One of the major challenges of cannabis businesses at the moment is profitability, and Tilray is no exception, as it's unprofitable. Furthermore, many of the industry's players gambled in the last few years on grabbing a bunch of market share first, and then becoming profitable later, resulting in widespread overbuilding of cultivation capacity that caused overhead costs to spiral. But unlike its competitors, Tilray didn't announce any closures of cultivation sites in 2022 or so far in 2023. And if it continues to bolster its efficiency, it might not need to.

Over the last three years, its quarterly cost of goods sold (COGS) fell by 34.6% when expressed as a percentage of revenue. More impressively, in that period its quarterly revenue also rose by 27.1%, reaching over $144 million in its fiscal second quarter of 2023. While its gross margin did erode slightly in that period, likely as a result of a marijuana glut that is driving selling prices down, overall the takeaway is that Tilray has been expanding globally and making inroads in fresh markets while driving its single most important efficiency metric downward substantially.

Still, inefficiency remains a major concern for investors, especially with regard to its performance in the Canadian market. There is a significant risk of it failing to improve over time, or for the trend of its improvement being at a glacial pace.

Once again, the improving COGS trend doesn't mean you should be calling up your broker to buy the stock immediately. Consistent and actual profits are still nowhere in sight. Nonetheless, the trend is quite positive, if preliminary, which is why a small purchase (for the right investor) made today could look super smart in a few years.

3. The booze biz is booming

Tilray's beer-selling businesses in the U.S. and Canada don't seem to share many synergies with its marijuana operations, but with its current pace of growth, it might not matter. 

As a result of its acquisition of Montauk Brewing Company and its existing subsidiaries like SweetWater Brewing Company, its beverage revenue jumped 56% year over year to reach $21.4 million in its second fiscal quarter. That growth led its alcohol segment to rise from being 9% of its revenue a year ago to 15% today, and with a gross margin of 52%, it's also the company's most profitable segment by far. 

There are a couple of implications of this expansion, the most important one being that Tilray may have some kind of competitive advantage in branding that is allowing it to make inroads so effectively in the crowded craft beer market of the U.S.

Such an advantage -- which could potentially be as simple as making tastier beer than other brands per the preferences of consumers -- would mean that further growth is likely, and also that the company would have a decent chance of retaining some of its market share despite being a new entrant to the market. That would stand in contrast to its experience in the Canadian marijuana market, perhaps due to the dramatically different regulatory and competitive environment of the U.S. beer market. Of course, it's also possible that spending plenty on marketing is having a beneficial impact that wouldn't stick around once the spending scales down. Regardless, while being good at selling beer isn't going to make the stock a must-buy today, if the process of penetrating the market allows Tilray to build up regional distribution networks, it could also make its cannabis sales in the U.S. significantly more profitable in the event of marijuana legalization.

And that's probably one of the arguments that a high-risk investor would use when justifying a purchase of the stock, even if there's no guarantee things will work out like that. However, for most investors, waiting a few years to see whether Tilray's management finally capitalizes on its strengths and attains profitability would be the best route in the meantime.