Tilray’s Fundamentals Aren’t Very Solid

Stocks to sell

If I never have to talk about cannabis firms again, it might be too soon. The one market category that gives me nightmares — and I’m a cryptocurrency investor for goodness sake! — is weed. Following an incredibly auspicious start to the new year, Tilray (NASDAQ:TLRY) is once again looking pedestrian. I’m at a point where I’m regretting saying anything about TLRY stock that’s good, bad or indifferent.

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If the cannabis firm is giving me headaches, I can only imagine what the situation is like for its stakeholders. At its closing high of the year so far, TLRY stock was priced just under $64. Unfortunately, that euphoria was short-lived. This afternoon, the stock is changing hands for just over $15.. It’s a remarkable fall from grace, with many wondering if there’s more pain to come.

To be fair, though, not everyone has a sense of dread regarding the technical position of TLRY stock. For instance, you can make the argument that certain technical dynamics are squeezing Tilray’s shares into a possible breakout move; specifically, the diagonal trend of lower highs is now coinciding with horizontal support.

Basically, there’s a triangulation pattern on the TLRY chart. Usually, triangular formations signal a big move. The question is, will the move be a breakout or a breakdown?

Interestingly, TLRY stock is close to its 200-day moving average, which in itself is over 30% below the 50-day moving average (DMA). When the novel-coronavirus pandemic first hit, Tilray fell quickly through today’s 200 DMA of $16.18. In late January of this year, the $13.44 level acted as resistance before the shares went on to their mercurial rise.

Whatever happens next, one thing is for sure: Tilray’s shares must climb going forward or risk severe technical damage.

TLRY Stock Must Deal With a Low-Confidence Environment

I’m sure the blogosphere is filled to the brim with arguments back and forth about the potential trajectory of TLRY stock. About the only type of person that’s loving the conversation is the day trader.

By using options to profit from volatility, traders can probably make a ton of money with TLRY stock. That’s about the only thing I can say about Tilray confidently.

The entire cannabis industry must contend with a low-confidence environment. Because the real issue isn’t about whether you’re interpreting TLRY’s chart correctly. Don’t get me wrong; I think reading charts is a valuable skill. But it’s dawned on me that Tilray shouldn’t even be in this position.

Following the Covid-19 crisis, the cannabis sector enjoys several positive catalysts. Among the most meaningful of the latter, in my view, include:

  • Massive political support for full legalization, especially with Democrats controlling the executive and legislative branches.
  • Overwhelming public support for recreational or legal marijuana use, according to a Pew Research Center report.
  • Huge demand for holistic natural solutions like cannabis because of stress and mental health issues associated with the pandemic.

Also, let’s not forget that the cannabis sector creates many jobs. Multiple reports indicated that the marijuana space has been adding jobs more quickly than any other space. And what was missing in the latest April jobs report? Jobs! The last report saw unemployment little changed at 6.1%, meaning we have a long ways to go.

That these factors haven’t boosted TLRY stock is definitely concerning for those who  own the shares.

The Poor Economy Poses Problems for Tilray

The tricky part about navigating TLRY stock is that supposedly contradictory information can be quite valid. For instance, it’s very much possible, as long as the economy is struggling, to have an incredibly robust environment for cannabis yet see the shares down in the gutter.

That’s because when you have a disjointed economic recovery —  in which white-collar folks do well, while everyone else suffers —  the legal cannabis industry loses much of its luster. And when police officers have better things to do than chase violators of weed laws, the legal green industry has almost no compelling incentive to offer.

Unfortunately, a hurting economy combined with unprecedented negativity toward law enforcement make black-market marijuana extremely enticing. Illegal dealers can supply the stuff cheaply and, frankly, very few people care if they do so. Until society returns to a somewhat normal state , TLRY stock is loaded with risks. And investors are noticing that.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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