On April 10, Tilray Brands (TLRY 1.71%) advanced the consolidation of the marijuana industry one step further when it announced that it was acquiring Hexo, an underperforming Canadian cannabis operator. The move should leave the company with a credible claim to being the largest marijuana business in Canada, and it will contribute to Tilray's reputation as being one of the more acquisition-hungry competitors. 

But for Tilray shareholders, the news is likely to be a mixed blessing at best, and it shouldn't necessarily tip anyone who is currently on the fence toward buying the stock. Here's why.

It's hard to see how the acquisition solves any problems

There are a few things that shareholders likely aren't thrilled about with Tilray's latest purchase, which is expected to close in June. 

First, the terms of the deal will mean that their shares get a bit diluted. Management opted to make the transaction for $56 million in newly issued stock rather than using any of its $408 million in cash and equivalents. That also suggests cash might get tight in the future. 

Second, Hexo is deeply unprofitable, its quarterly revenue shrank 54% year over year, and it has $191 million in Canadian dollars ($143 million) in debt. Management claims that there should be around $25 million in annual cost synergies to realize after the purchase is complete, but it's unclear how long that will take to occur.

The third thing is that after the acquisition, Tilray will control an estimated 12.9% of the Canadian cannabis market, up from its 8.1% share today. The trouble is, when it announced in late 2020 its planned merger with Aphria, another major Canadian cannabis business, the pair controlled a total of 17% of the market at the time. In other words, management's track record with retaining the market share it gains via acquisitions is spotty at best, and its long-term goal of reaching a market share of around 30% seems persistently far off. 

The last issue with buying Hexo is that three of its four marijuana brands are targeted toward the value segment of the market. Value-priced products tend to have lower margins than premium-priced products, because with premium products there's far more room for marking up prices based on relatively inexpensive features like trendy branding. And Tilray needs to beef up its margins, not grow its collection of value brands from two to five.

So shareholders are unlikely to be impressed by buying a smaller and weaker competitor that will dilute their shares, since the previous plan to buy a far more capable competitor didn't result in much in the form of returns.

Tilray's stock has lost some 36% of value in the last three years. And the company still isn't profitable, it still isn't growing its top line very quickly year over year, and it's still burning cash every quarter.

What's coming up next? 

Assuming regulators agree to the deal, Tilray will have its work cut out after it closes its bolt-on acquisition. Operating its newly gained market share and slashing redundant costs could provide some good news for shareholders next quarter and beyond, but don't count on that before it happens if you're wondering whether to buy shares or hold on to those you have. 

Before the stock is worth buying, the company needs to show some consistent lowering of its costs, and experiencing faster growth wouldn't hurt either. Unfortunately, it's likely going to be stymied on both those fronts by the sorry state of the Canadian cannabis market, which is flooded with cheap marijuana that's putting a crimp on margins. Likewise, the stock market heavily disfavors marijuana companies and unprofitable companies at the moment, and Tilray falls into both of those buckets. 

So don't take the Hexo acquisition as news that makes Tilray stock a must-have. While it could still become the most important marijuana business internationally in due time, reaching that goal is a plan that's in progress at the moment. And with conditions making an investment so risky, it's probably best to steer clear for now.