Tilray Brands (TLRY +1.80%) is like the captain of a big ship that happens to be sinking. The company is a leader in the cannabis industry, but during the past five years, this market has faced significant obstacles, and the entire sector has been an investing disaster. Tilray seems to have some momentum at the moment. In the past six months, several catalysts have sent its stock price soaring by 90%. However, Tilray Brands just initiated a stock split, and it's not the kind you might be thinking of; it actually says a lot about Tilray's prospects (or lack thereof).
Image source: Getty Images.
The stock price rose, but not organically
Stock splits come in two varieties. There is the forward version, when a company issues more shares and decreases its stock price correspondingly. While it doesn't change a corporation's underlying business, this kind is often perceived as a sign that management has a lot of confidence in the short- or medium-term prospects of the company and anticipates that the share price will gain even more in the near future. In other words, it's a good thing.
That's why companies that implement forward stock splits often see their share prices initially fall but then start to rise. Then, there is the reverse kind -- that's when a business decreases its share count and increases its stock price. Why would a company do that? The rules stipulate that to be listed on some major stock exchanges or be included in equity indexes, such as the S&P 500 or the Nasdaq Composite, companies must have a stock price above a certain amount. If the price drops below that level for too long, it can be delisted or removed from an index, which comes with a range of problems: The shares tend to become less liquid, the stock is traded on a less prestigious exchange, and the company has reduced access to capital, among other issues. On June 10, Tilray's shareholders approved a 1-for-10 reverse stock split, which the company implemented on Dec. 2. Shares now trading for about $7, so the cannabis leader is no longer at risk of being delisted from the Nasdaq. However, the fact that it needed a reverse stock split speaks volumes about its performance in recent years and where the stock might head next.
NASDAQ: TLRY
Key Data Points
Can the recent momentum continue?
There are at least two factors behind Tilray's run in recent months. First, there seemed to be movement toward cannabis legalization in the U.S., especially as President Donald Trump, on social media, indicated support for the positive health effects of cannabidiol. The president also said his administration was looking into reclassifying cannabis as a Schedule 3 substance, which, while not exactly akin to legalization, would be a step forward.
Second, during the first quarter of its fiscal year 2026, which ended on Aug. 31, Tilray reported an unexpected profit.
Are these two good enough reasons to buy the stock? The answer is no, in my view. The idea that the U.S. will legalize cannabis remains speculative. We have been close to that milestone practically every year for a while now, but it still hasn't happened. And the actual legal changes that have happened during the past few months include a law signed by Trump that bans the sale of hemp-based THC products, which is terrible news for Tilray.
The regulatory landscape continues to pose severe problems for Tilray. That might not change even with legalization, since the government would likely still have stringent rules on the books regarding the purchase, sale, and distribution of cannabis and related products. Further, a rare net profit for Tilray in its most recent quarterly update can hardly undo years of horrendous performance. Organic revenue growth has been inconsistent at best, with net losses being the norm, and there is no end in sight, given the significant doubts surrounding the cannabis industry in the U.S., Canada, and elsewhere.
Where does that leave Tilray? The stock is likely to remain a wealth destroyer during the next five years. It's best to stay a safe distance from Tilray.
