​​Tilray stock rallies as cannabis reclassification looms, yet risks linger

Tilray stock price continued its recent rally, reaching its highest point since October 20, ahead of the potential cannabis reclassification executive order by President Donald Trump. 

Summary

• Tilray Brands stock price rallied as Trump prepared to sign an executive order on cannabis reclassification.
• That reclassification will move cannabis from a Schedule 1 drug to Schedule 3.
• While the stock may keep rising, it faces more headwinds in the near term.

Tilray Brands (TLRY), a leading company in the Cannabis industry, reached a high of $15.71. This surge brought its valuation to over $1.7 billion.

As of the last check, it was trading at approximately $13.05 per share, up approximately 240% over the past six months.

Trump has hinted that he will sign an executive order that will move cannabis classification from Schedule 1 to Schedule 3. That transition will make it easy for companies to sell cannabis and its products in the U.S.

It will also help Tilray Brands establish a presence in the country, either organically or through acquisitions. Moreover, it has a strong balance sheet that may be leveraged to engineer a buyout. 

Still, there are potential risks that may impact Tilray shares and those of other cannabis companies. First, Trump’s executive order will not automatically reschedule cannabis. Instead, it will have to undergo a lengthy process, including public comment. 

Most importantly, it will likely face litigation, as opponents will likely sue. This is what derailed Joe Biden’s attempt to reclassify the product in his first term. 

Second, the rescheduling will not address other challenges that cannabis companies face in the U.S. For example, companies in the industry will still face the banking challenges they have always had. This will only change when the Senate and House pass a cannabis bill. 

Third, Tilray stock has jumped ahead of the rescheduling executive order. Therefore, it is likely to decline after the event, as investors sell the news and wait for the next catalyst. 

Additionally, the company’s pivot to the beverage industry is not working out. In its recent report, TLRY said that the segment’s revenue dropped to $55.7 million from the $56 million it made in the same period last year. Its gross margin also declined to 38% from 41%.

Tilray stock price technical analysis 

The daily chart shows that the TLRY stock price bottomed at $7 on Dec. 4 and has reached a high of $15.7 today. It rebounded after forming a falling wedge pattern, a bullish reversal sign. 

It formed a bullish gap on Dec. 11 and has now moved above the 50-day and 100-day Exponential Moving Averages. It also rose above the 50% Fibonacci Retracement level. 

The Relative Strength Index is nearing the overbought level at 70. Therefore, the stock price will likely continue to rise ahead of the rescheduling and then pull back after it occurs. If this happens, it may retreat to the support at $10.