As a leader of the Canadian cannabis market, Tilray Brands (TLRY -2.52%) is in an enviable position. Between its collection of increasingly valuable cannabis brands and a large market to sell them in, it's well-positioned to grow -- and its work at home may eventually be overshadowed by its ongoing operations in even larger markets like the U.S. and the E.U.

Still, its shares are down by 70% in the past three years, and it continues to burn money every quarter. Is it a downwardly mobile dud, or a future winner that just needs a bit more time to cook? Let's investigate. 

The bad times will end eventually

The investing thesis for buying Tilray today is based on two assumptions. The first is that the company will eventually be able to become profitable and sell cannabis at industrial scale across the continents where it operates. The second assumption is that the ongoing combination of headwinds in the cannabis market and the stock market will abate, thereby allowing its sales and earnings to resume growth.

Let's unpack the second assumption first.  At the moment, the North American market for marijuana products is flooded due to overproduction by businesses like Tilray and its competitors that were trying to secure as much market share as possible. When there's more supply than there is demand, prices fall, and low prices make it very difficult to maintain profit margins for producers.

Separately, right now cannabis stocks are out of vogue. After an initial flurry of interest in them during 2020 and early 2021, the market's preference shifted to profitable businesses that could be relied upon to deliver returns to investors, even in a degrading or poor economic environment. The cannabis glut and the market's disaffection with the industry will both eventually fade though it might take another year or two.

But what about Tilray's prospects of becoming profitable? There is a solid chance that the company will be able to rectify its inefficiencies and become profitable. Its operations in the E.U., while hampered by the lack of cannabis legalization, have the advantage of manufacturing and cultivation facilities located in Portugal. Because Portugal is an E.U. member state, it can export cannabis products to other E.U. countries without paying tariffs, which will keep costs much lower than they might be otherwise. At the same time, if legalization does happen there, Tilray will see a surge in demand. 

In North America, however, success will require muddling through a competitive fight for market share, and without the chance of any legalization-driven reprieve in its home market of Canada. As the biggest marijuana operator in Canada, Tilray will need to either undercut the other players with lower prices or develop a competitive advantage in the form of a low-cost production or strong branding.

Given that its quarterly total operating expenses have risen significantly as a percentage of its sales over the past three years, realizing cost efficiencies will also likely be necessary along the way.

This stock could keep falling 

So our first assumption is plausible, but not guaranteed to be proven true, whereas the second assumption is a safe bet on a long enough timescale. But that doesn't mean you should buy this stock today.

Tilray has $440 million in cash and equivalents, $603 million in debt, and trailing 12-month operating expenses of $357 million. It burned $101 million of its cash over the last four quarters, and it's quite far from being profitable. In its fiscal third quarter, it announced that it had made $22 million in annualized run-rate savings, and management is saying that more cost cutting is on the way.

But none of the savings so far have inspired the market to value its stock higher. And until the marijuana market reaches a more balanced equilibrium between supply and demand, it probably won't. There isn't any big rush to buy Tilray today. If it manages to succeed in executing its vision to become a world leader in cannabis, the signs will be visible for investors paying attention to marijuana prices in North America long beforehand.

On the other hand, between taking out new debt and issuing more shares of its stock, the company can probably limp along for a handful of years before bankruptcy becomes a major risk -- and you don't have to go along for the ride.