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Here’s the risk for buying TLRY, CGC, MSOS, and SNDL stocks

By: Invezz
Image for Aurora Cannabis earnings

Cannabis stocks have gone parabolic. Tilray Brands (TLRY) stock jumped by over 39% on Tuesday while Canopy Growth (CGC) soared by over 78%. SNDL soared by over 22% while the AdvisorShares Pure US Cannabis ETF (MSOS) roared back by over 24.8%. 

Tilray Brands vs MSOS vs SNDL vs Aurora Cannabis

Tilray Brands vs MSOS vs SNDL vs Aurora Cannabis

US to reclassify cannabis

These stocks jumped after the Biden administration said that it would reclassify cannabis into a less harmful category. That will be a big step for the cannabis industry, which has come under intense pressure in the past few years. Chuck Schumer, the head of the Senate wrote:

“It is great news that DEA is finally recognising that restrictive and draconian cannabis laws need to change to catch up to what science and the majority of Americans have said loud and clear.”

The stocks also surged after it emerged that the Senate leadership said that cannabis legislation would be a priority in the coming months. The Senate is working on a banking bill that would solve one of the biggest challenges that the industry faces.

In most cases, many mainstream banks have avoided companies that provide cannabis products in the United States. That is happening even in states that passed pot-friendly laws recently.

These banks are always concerned about the grey areas in the cannabis sector such as interstate trade. They are also often afraid of being caught up in money laundering searches in the country.

Need for caution as cannabis stocks jump

Still, there are some reasons to be careful when buying cannabis stocks like Tilray Brands and Aurora Cannabis. First, it is unclear whether the cannabis banking bill will be passed in a deeply divided Congress. Even if it passes the Senate, it is unclear whether Speaker Mike Johnson will take it to the House. 

Second, cannabis stocks, as I warned recently, tend to have some major pumps and dumps. Just recently in March, Tilray Brands stock surged from $1.60 to $3 and then plunged to $1.65 a few weeks later.

In the same period, the Aurora Cannabis stock soared from $2.86 to a high of $9.2 and then pared back some of those gains. MSOS, an ETF that tracks American cannabis stocks, jumped in March and then erased the gains.

Third, it is unclear whether any legislation will directly impact sales of these companies. Besides, most people who need cannabis products in the US can get them easily. 

A closer look at these companies shows that they are not growing as fast while profitability growth has been weak. Tilray Brand’s annual revenue rose dropped from $628 million in 2022 to $627 million in 2023. In its recent earnings, the company said that it will be cash flow negative this year.

The same is true among many other cannabis companies like Aurora Cannabis and SNDL.

The post Here’s the risk for buying TLRY, CGC, MSOS, and SNDL stocks appeared first on Invezz

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