Tilray Brands (TLRY -0.48%) and Bitcoin (BTC 6.85%) aren't in the same league. For one, Bitcoin is a leaderless cryptocurrency with many evangelists but no true stewards, and Tilray is a major global cannabis company, complete with management, operations, assets, and a roadmap for the future.
But for investors considering where to park their cash, both investments could be seen as falling into the same category of very risky yet potentially highly rewarding options. So let's drill down and examine which of these two is more likely to grow, or at least less likely to lose your money if you decide to buy it.
The case for Tilray
Tilray's vision is to be the world's largest marijuana business, while also being a major competitor in the alcohol industry of North America, and perhaps beyond.
Along the way, management has high hopes for marijuana legalization in the U.S., as it has a deal that will grant it a minority stake in a domestic cannabis business when federal legalization occurs. Similarly, its positioning in the E.U. is in medicinal marijuana, with the idea that as the markets there open for recreational use, Tilray will be the first provider in line to access consumers.
To attain its vision, it will need to rectify its operations such that they produce more cash than they burn. In its fiscal Q3, it reported operating losses of more than $82 million despite recently concluding a cost savings campaign in in its Canadian home market footprint. While management sought to push the company to be free cash flow (FCF) positive on an adjusted basis before the end of this fiscal year, in its third-quarter earnings report it abandoned that goal.
Now it's unclear exactly what the next steps will be. Legalization in the U.S. and E.U. is not a guaranteed outcome, and recent reforms, as well as proposals for other reforms, have moved at the pace of molasses in a frigid January (pretty darn slow). Continued market leadership in the E.U.'s medicinal segment is possible, as is retention of its leading share of the Canadian recreational market.
But with an uncertain timeline for the catalysts affecting its top line, and with its bottom line still hurting tremendously, it'll remain in risky territory for the foreseeable future.
Bitcoin looks good right now
As the king of cryptocurrencies, Bitcoin remains volatile and risky despite its vintage and widespread adoption. Furthermore, as it's presently relatively close to its all-time high, bears are apt to claim that the only direction it's likely to go is straight down. After all, as the critics say, the technology has no real-world use cases, and its pricing is largely a matter of runaway investor psychology and desire for speculation.
As convincing as those arguments might sound, they neglect to engage with the single most fundamental aspect of economics: supply and demand.
Imagine, if you will, the chart that's in every economics textbook countless times, with the price of a good on the Y-axis, and the demand for the good supplied on the X-axis. Now imagine the line of the demand curve, which starts at the upper left, and sweeps downward toward the right, depicting that demand for goods increases as prices fall, and vice versa. Next comes the supply curve, which starts at the lower left, and extends up and to the right, showing that as prices increase, the creation of more supply is incentivized.
The intersection of the supply curve and the demand curve is the equilibrium point. But what happens when supply becomes much harder to produce? The quantity supplied must drop, which leads to higher prices at the same level of demand.
Due to the self-imposed confines of the protocol itself, there are a finite number of bitcoins that can ever exist -- 21 million, to be precise. 19 million of those coins have been mined already, meaning that they are in circulation, at least nominally. In April, the "halving" occurred, and miners will now reap only half as much of the cryptocurrency with each new block that they mine. And what do you think will happen at that point, within the framework of the supply and demand chart?
If you said that the price per coin will go up, that's indeed the textbook answer, and many people are heavily invested in that answer being proven true. Of course, the real world is far more complicated than the simplest of theoretical economic frameworks, and nothing is guaranteed.
The market could already be pricing in the future impact, as its rough timetable for occurring has been known for a long time due to the fact that the mining difficulty increase occurs mechanically after a certain number of blocks have been mined. Nonetheless, there's a clear potential catalyst event in progress, and it could lead to significant growth.
The verdict
Presently Bitcoin looks to be the better risky investment than Tilray Brands.
Whereas Tilray's marijuana legalization plans in the U.S. would indeed be a major catalyst for the company, many cannabis stock investors have been burned by predicting that legalization is right around the corner. The political situation remains contentious, and Tilray's ongoing operational inefficiency does not inspire much confidence that it can deliver solid returns.
Bitcoin may or may not significantly gain in value in the coming months. The point is that its catalyst is playing out now rather than languishing while subject to legislation or regulations, and that's what makes it worth buying instead.
