I’m not trying to make an etiquette faux pas by capitalizing the word “safe” in my headline. But investors who are familiar with cannabis legislation are likely to be familiar with the SAFE Banking Act of 2021. And for long-suffering investors in Tilray Brands (NASDAQ:TLRY), it offers a glimmer of hope. However, does that mean this is time to take a position in TLRY stock?
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I’m skeptical. I still believe that the United States will eventually drop the federal prohibition on cannabis. That will allow investors to see if Tilray will be successful in capturing a market that the Brightfield Group believes could reach $50 billion in 2026 even without federal legalization.
And there are now not one, but two bills in the United States Congress that seek to lay the groundwork for federal legalization. However, the clock is ticking on mid-term elections. And with geopolitical concerns moving to the front burner, I don’t like the odds of either bill passing any time soon.
However, the SAFE Banking Act may make it through. But will it be a catalyst for cannabis stocks in general and TLRY stock in particular. Let’s take a look together.
Passage is Not a Sure Thing
It has been kicking around the halls of Congress for nearly ten years. But now, as part of the America COMPETES Act of 2022, the SAFE Banking Act has new life. The bill would protect banks and other financial institutions from the penalties they are currently subject to if they service cannabis-related businesses even if they operate within their state’s legal and regulatory frameworks.
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The upshot is that cannabis companies, such as Tilray, could operate in safer, more trustworthy ways rather than relying entirely on cash. This was the top business challenge for 70% of the 396 cannabis companies cited by Whitney Economics.
The bill recently passed the House of Representatives for the sixth time. But the House hasn’t been the problem. The bill has garnered bipartisan support every time it has come up. However, the Senate has been a different story.
To understand why is to understand the nature of American politics. The SAFE Act has bipartisan support. At one time, support from a broad coalition would ensure passage. Now, those voices are drowned out by the fringe elements of both parties. For some Republicans, the legislation is too broad. For some Democrats, it is too narrow.
Legalization is the Key
I’m only providing this lesson in inside baseball because legalization is the real key. I could tell you about Tilray being profitable in their last quarter. I could point to revenue that is steady, if not spectacular and well above pre-pandemic levels. I could point to the strides the company continues to make in the medicinal marijuana market, which is the part that holds the most promise, in my opinion. And I won’t ignore the consensus estimate of analysts that suggests TLRY stock has a 79% upside from its current price.
But investors in the cannabis sector have heard about that for years. The one thing that will truly be a catalyst for Tilray — or any other cannabis company, for that matter — is the federal legalization of cannabis in the United States.
Is TLRY Stock a Buy?
At the time of this writing, TLRY stock is holding up better than the broader market. There are two problems with that. The first is that “holding up” in this case means the stock is only down 13% year-to-date. The second is that it is very possible that it may have further to fall.
The bullish case for Tilray stock ultimately depends on when the United States removes the federal prohibition on cannabis. The SAFE Banking Act won’t do that. But steps are being taken in that direction. And I can imagine that President Joe Biden’s administration would love to deliver something tangible on this front prior to the mid-term elections.
But with the current issues facing the White House, it is fair to wonder where legalizing marijuana will fit into the Biden administration’s priorities.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.
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