Most regulatory headwinds remain for cannabis companies like Tilray.
Marijuana stocks experienced a short-lived surge back on April 22. Tilray Brands (TLRY 1.28%) was no exception.
The boost was triggered by news of the Department of Justice's plans to reschedule regulated marijuana products from Schedule I to Schedule III of the Controlled Substances Act.
However, soon after this rally took shape, these same stocks coughed back their gains, and then some. After surging from around $7 to around $8 per share in a matter of hours, Tilray stock dropped closer to $6.
Image source: Getty Images.
To some degree, there may have been "buy the rumor, sell the news" at play in cannabis stocks with the rescheduling news. However, it's not surprising that the market quickly went from bullish to bearish regarding this news.
For one, the announcement, issued by the Department of Justice's Drug Enforcement Administration, only granted immediate rescheduling of FDA-approved and state-regulated medical marijuana products from Schedule I to Schedule III. Proposed plans to fully reschedule marijuana from Schedule I to Schedule III are pending an administrative hearing process, albeit an expedited one.
Second, even a full-on rescheduling of marijuana, if approved immediately, wouldn't matter much for Cannabis companies like Tilray.
Rescheduling does matter greatly. Moving from Schedule I to Schedule III takes marijuana out of the same league as heroin, and places it in the same category as prescription drugs. Under Schedule III, cannabis companies would also no longer be subject to Section 280E tax rules, which basically disallow all regular expense deductions for marijuana businesses.
Still, it's not just rescheduling that needs to happen on the federal level. Tilray and its Canada-based peers need full legalization to occur as well.
In the meantime, stick to the sidelines with this risky growth stock. As regulatory progress remains a work in progress, long-standing company-specific issues, including persistent losses and the poor performance of Tilray's line of cannabis-infused beverages, could keep weighing on shares.
Thomas Niel 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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