Shares of cannabis company Tilray Brands (TLRY +0.68%) rallied some 40% this week through Thursday trading, according to data from S&P Global Market Intelligence.
Last weekend, President Donald Trump posted a pro-cannabidiol (CBD) video -- albeit produced by a third party -- on his Truth Social account. CBD is a chemical derived from cannabis that has reported medical benefits, but does not cause the "high" of other cannabis compounds.
Tilray also announced an expansion of medical marijuana cannabis flower in Germany this week; still, it appears the Trump post was the main catalyst for the big move higher.
Image source: Getty Images.
Trump appears to get behind CBD for senior health
In the video produced by The Commonwealth Project that President Trump posted, the narrator touts the benefits of CBD in boosting the body's endocannabinoid system, which the video claims can help reduce aging-related maladies and displace expensive pharmaceuticals.
While cannabis remains illegal in the United States at the Federal level, the 2018 Farm Bill legalized CBD. That said, the Food and Drug Administration excludes CBD from food supplements, and mainstream physicians generally don't prescribe the cannabis-derived chemical -- nor does Medicare cover over-the-counter CBD.
However, it appears Trump's post means the administration is getting behind CBD as a natural and cheaper alternative to expensive pharmaceuticals, which cost patients and taxpayers billions every year.
The post boosted just about all cannabis stocks to start the week. This is because many cannabis stocks, Tilray included, sell CBD products alongside their cannabis products. Tilray is actually now diversified across recreational cannabis in Canada, medical cannabis in Europe, CBD drinks in all markets including the U.S., and more recently, alcohol.
NASDAQ: TLRY
Key Data Points
In addition to the Trump post, Tilray also issued a press release on Tuesday announcing the expansion of its medical cannabis portfolio in Germany, which has legalized cannabis not only for medical but also recreational use.
Tilray remains risky but could pop higher if cannabis is de-scheduled
Cannabis stocks have moved higher at various points over the past five years on hints of potential legalization or de-scheduling, only to fall again once those hopes were dashed. As such, I would be highly skeptical of this rally.
After all, most cannabis companies struggle to make profits, and Tilray is no exception. The company took a massive impairment charge last quarter, sending losses deeply into the red. But even absent the $1.4 billion impairment, Tilray would still have lost money on a GAAP basis.
President Trump did say he was "looking at reclassifying marijuana" back in August, perhaps leading to hope that a de-scheduling could lead to tax relief for U.S. cannabis companies. But until that happens, investors should stay away from these speculative names. Even if cannabis is de-scheduled with the associated tax relief, it's unclear if high competition will eat away at the industry's profits.
