Here’s why the Tilray Brands stock may surge soon despite major risks

Tilray Brands stock price has moved sideways in the past few weeks as momentum in the cannabis industry waned. It was trading at $6.90, down by over 70% from its highest level last year. Still, technical analysis suggests that the TLRY stock may be on the cusp of a rebound.

Tilray Brands stock on edge despite earnings growth

TLRY stock has stalled in the past few weeks as sentiment in the industry worsened. President Donald Trump has focused more on the ongoing Iran war and has not commented on the cannabis rescheduling process he announced last year.

As such, there are fears that the reclassification may not happen in the near term as it is still facing opposition. A reclassification would be highly bullish for the company because it would make it easier to expand its business in the US. 

Still, on the positive side, there are signs that Tilray Brands’ business is doing well, helped by its international segment, which grew by 73% in the last quarter.

The most recent results showed that the company's revenue jumped by 11% to a record high of $206.7 in the third quarter. This was the second consecutive quarter of double-digit revenue growth rate. However, investors are still concerned that its growth is being driven by acquisitions.

The growth was driven by the core cannabis segment, whose revenue jumped by 19% to $64.8 million. Its wellness business made $16.4 million, up by 16% YoY, with its gross margin moving to 33%. 

The results also showed that its distribution revenue rose to over $83 million, while the beverage revenue dropped to $42.6 million from the previous $55.9 million. This decline is notable as the company has spent millions of dollars acquiring brands in the beverage industry.

The management believes that the company has more room to grow in the coming months and that its profitability metrics will continue improving. Precisely, the management expects that the EBITDA will be between $62 million and $72 million this year.

At the same time, the company has embarked on the Project 420 program that aims to cut costs by over $33 million. This program partly explains why the company’s net loss improved by 97% in the third quarter to $793 million. 

Tilray Brands continues to strengthen its balance sheet, with the management slashing the debt load by $4.2 million. It ended the last quarter with over $264 million in cash and short-term investments.

Tilray stock technical analysis 

TLRY stock chart | Source: TradingView 

The daily timeframe chart shows that the TLRY stock price has crashed in the past few months, moving from a high of $15.65 in December last year to $6.9 today.

It has slumped below the 78.6% Fibonacci Retracement level and the key support level at $7.0, its lowest level in December last year.

The stock remains substantially below the 50-day and 100-day Exponential Moving Averages (EMA).

On the positive side, it has formed a falling wedge pattern, which is made up of two descending and converging trendlines. In most cases, this pattern often leads to a strong bullish breakout, especially when the two lines are nearing their confluence.

The stock has also formed a tiny inverted head-and-shoulders pattern. Therefore, the most likely scenario is where the stock rebounds in the coming weeks, potentially to the key resistance level at $10, which is about 45% above the current level.