Marijuana rescheduling may have taken place in the U.S., but that doesn't mean legalization will happen anytime soon.
The U.S. government recently rescheduled medical marijuana from a Schedule I substance to Schedule III, which is great news for the industry and marks a milestone. It's an acknowledgment that there are valid medical uses for marijuana, and many cannabis companies in the U.S. will benefit as a result of that.
Tilray Brands (TLRY 1.28%) is a Canadian-based cannabis producer, and while there may be optimism around it potentially entering the U.S. marijuana market, here's why you shouldn't count on that happening anytime soon.
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The most important thing for cannabis investors to remember is that rescheduling marijuana is not the same thing as legalization. With rescheduling, it'll be easier to research marijuana in the U.S., but by no means is the border open for Canadian producers to move cannabis products south. Marijuana remains a controlled substance and is federally illegal. While rescheduling has taken place for medically licensed marijuana, recreational products haven't been rescheduled yet, and while it may seem that the industry is moving toward legalization, there is nothing to suggest that will happen anytime soon.
Tilray Brands, however, jumped at the opportunity to remind investors that it's "positioned for U.S. expansion" in a recent press release, in which it called the move "a defining inflection point." While Tilray is definitely in a good position to take advantage if the opportunity arises to enter the U.S. pot market (whether for recreational or medicinal products), that doesn't mean a big move like that is coming soon.
Even if the Trump administration moved forward with legalization efforts or broader reform, the process alone could take years. Investors shouldn't forget that it was back in October 2022 when then-President Joe Biden first asked the U.S. Department of Health and Human Services and Drug Enforcement Administration to review marijuana scheduling. Government reform can take a considerable amount of time.
For years, cannabis investors have been holding onto pot stocks in the hopes that legalization in the U.S. might be coming soon. In the end, it has simply resulted in some significant losses. The last time Tilray Brands' stock generated a positive annual return for investors was back in 2018, when it soared 215% — when Canada legalized marijuana. It's been downhill ever since, in what's been an epic example of "buy the rumor, sell the news."
Tilray Brands stock has made for a disappointing investment to own for several years, and there's little reason to expect things to change anytime soon. Legalization in the U.S. is the big carrot that draws in investors, but it's not on the horizon, and even if it were, it could still be years away from being a possibility. The safest option is to take a wait-and-see approach with Tilray, as it's far too risky a stock to hold.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
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