Tilray earnings miss, TLRY stock still surges following Biden cannabis decriminalization effort

• TLRY jumped 7.4% to $4.20 early in Friday's premarket.
• Tilray stock then fell about 2.6% following its poor FQ1 earnings results.
• The Biden Administration said on Thursday it may remove cannabis from the Schedule I category.

Tilray (TLRY) stock gave up a measly 2.6% to trade at $3.80 in Friday's premarket after releasing fiscal Q1 2023 earnings that underperformed consensus. The news was not bad enough to send Tilray into a tailspin, however, one day after jumping 30.9% on the back of a cannabis decriminalization policy undertaken by US president Joe Biden.

Cannabis stocks look to continue advancing on Friday after many saw their biggest surges of the year on Thursday. President Biden's move to pardon thousands of citizens charged federally with simple possession was taken as another signpost on the way to full national decriminalization. More importantly, Biden said his administration was looking into removing cannabis from the federal Schedule I class of drugs, which puts it in the same category as heroin and LSD, thereby reducing any penalties for selling or distributing the drug as well.

Both Tilray and SNDL (SNDL), two of Canada's largest purveyors of cannabis products, surged ahead on Friday. Tilray added 30.9% to close at $3.90, while SNDL close up 23.5% at $2.79. Friday's premarket has demonstrated more nervousness. Early in the premarket, both stocks advanced again. TLRY jumped 7.4% to $4.20, while SNDL added 5.5% before both dropped on Tilray's earnings release.

Cannabis legalization, jobs reports

Removing cannabis from the list of Schedule I drugs is viewed as a step in the right direction. Most critics see Biden's move as part of his effort to help the Democratic party outperform in the mid-term elections that now are less than one month away. Biden is thought to have changed his mind on cannabis decriminalization after speaking with Democratic Pennsylvania Senate candidate John Fetterman at a political rally recently. Biden has long held a conservative reputation around drug legalization and helped lead the effort to bring longer prison sentences to bear on drug offenders in the 1990s when he was in the Senate.

Now the optimism surrounding cannabis stocks involves the thinking that Biden may pivot post-midterms to the Cannabis Administration and Opportunity Act being pushed by Senator Cory Booker (D-NJ) that would fully allow banks to get involved with cannabis growers by removing existing federal laws.

The Nonfarm Payrolls figure was released before the market opened on Friday, and it shows the US economy hired 263,000 additional workers in September. Consensus had been at 250,000 hires and an unemployment rate of 3.7%. The actual unemployment figure came in at 3.5%, showing that inflation will likely be even harder to cure with such a red-hot economy. This data demonstrates that the Fed has its work cut out for it and that its earlier rate hikes have not worked thus far in pushing up the unemployment rate. Stocks are likely to take this news poorly and sell off once the regular market opens on Friday. 

As it pertains to the Canadian economy, similar data came out this morning as well that showed the economy producing 21,100 new jobs, narrowly above consensus at 20,000. The unemployment rate fell to 5.2%, below the consensus of 5.4%.

Tilray stock earnings

Tilray delivered fiscal Q1 earnings this morning of $-0.08 per share on revenue of $153.2 million. Both figures missed the Wall Street consensus forecast of $-0.07 on EPS and revenue of $$156.9 million. Tilray largely suffered due to a pullback in its cannabis business. Distribution of alcohol largely made up the difference, with that segment up 34% YoY.

“We expect to remove $130 million of costs from the business," said Tilray CEO Irwin Simon. "We also plan to realize an additional $40 million in revenue and interest payments from the strategic HEXO transaction. These initiatives, combined with our market share and revenue gains, should position Tilray Brands extraordinarily well for the future, allowing us to reconfirm our guidance of $70 - $80 million of adjusted EBITDA and be free cash flow positive.”

Cannabis revenue flopped 17% YoY, while distribution and wellness revenue each fell about 10% YoY.

Tilray stock forecast

Tilray stock has held onto most of its gains in Friday's premarket, which is interesting since fiscal first-quarter earnings were quite poor. This just goes to show that much of the bad news was already priced in. Regaining $3.90 in the regular market will be a major win for bulls, and August's resistance at $4.40 remains the target for bulls in the mid-term. Before then there may be resistance around $4.10 as well. On the downside, TLRY has recent support from $2.65 to $2.75.

TLRY daily chart