What happened
Canada's Tilray Brands (TLRY -18.22%) is having a strong trading session today. Specifically, the consumer packaged goods and cannabis company's stock was up by 6.75% on heavy volume as of 1:31 p.m. ET Wednesday.
What's behind this latest rally? Investors appear to be cheering the news that Germany's federal cabinet approved a marijuana legalization bill, potentially setting the stage for adults to buy up to 50 grams of cannabis per month and cultivate up to three plants for personal use. The bill still has to pass the country's Parliament.
Tilray Brands, through its merger with Aphria, sports a commercial footprint in Germany. Germany is the largest medical cannabis market in Europe and potentially one of the largest recreational markets as well.
So what
Germany moving forward with its plan to legalize marijuana for adult use is undoubtedly an encouraging development for cannabis investors. However, this political action probably won't have much, if any, direct impact on Tilray Brands' top line in the short term.
Germany intends to take a multiyear approach to legalizing cannabis in order to study the drug's broader impacts on society. As part of this plan, Germans will have to buy cannabis from nonprofit social clubs that must be approved by Parliament.
In other words, Tilray Brands, along with its fellow cultivators in the country, will have limited opportunities to benefit financially from this bill. Critics of the bill were also quick to point out that it probably won't curb the country's thriving black market, which has been a source of intense competition for legal growers in both Canada and the United States.
Now what
Is Tilray Brands stock a buy on this news? While there is a solid argument to be made that the company's shares are undervalued following its latest craft beer deal, cannabis is likely to remain a long-term value driver for the foreseeable future. Marijuana, after all, probably won't be broadly legalized for recreational purposes in either the U.S. or the European Union until the tail end of the decade, and perhaps longer. As a result, investors should probably focus on the company's burgeoning alcohol and beverage segment for the time being.
