Here’s why Tilray Brands stock has crashed: will it rebound soon?

Tilray Brands NASDAQ:TLRY stock price has plummeted this year, and is now hovering at its lowest level since July last year. It has plunged by 76% from its highest point last year, meaning that a $10,000 investment at its peak would be about $2,100 today. 

Tilray Brands is facing major headwinds as core business slows

Tilray Brands and other cannabis companies have come under intense pressure. While the cannabis industry is growing in key countries, the reality is that it has not become the vibrant sector that people were expecting after the famous Supreme Court ruling. 

Recent studies estimate that the US market size for cannabis stands at over $30 billion, with its compounded annual growth rate (CAGR) being 4.5%. In the past, estimates were that it would have double digit growth rates over time.

Tilray shares jumped to $9.30 in April after the US made efforts to reclassify cannabis into a less dangerous drug. This happened after the industry spent millions of dollars lobbying and financing Trump’s campaign.

The reclassification would benefit Tilray Brands as it has expressed a desire to enter the market. Still, the proces will take time, including a lawsuit brought by prohibitionist organization and drug-testing groups. These lawsuits are the ones that derailed Joe Biden’s reclassification efforts.

Beverage business is slowing

Meanwhile, the company’s entry into the beverage industry is not going on as planned. A look at its financial reports shows that its revenue and margins have remained under pressure in the past few months. 

The most recent results showed that its revenue dropped to $42.6 million in the last quarter from $56 million in the same period last year. Its gross margin also dropped to 32% from the previous 36%. It was the worst-performing division in its business in terms of revenue growth. 

The company has also continued to lose money in the past few years. Its loss improved to $25.2 million in the quarter compared to a $793 million in the same period a year earlier. Still, it will take longer for the company to achieve stable profits.

These fears explain why investors have continued to short the stock. Data shows that its short interest has jumped to 16.4%, higher than other companies in the industry. This rising short interest is putting more pressure on its business.

Analysts expect that Tilray’s revenue will continue to grow in the near term. The average estimate is that its annual revenue will jump by 7.6% this year to $884 million, followed by $1.1 billion next year.

Tilray Brands stock price technical analysis

TLRY stock chart | Source: TradingView

The daily chart shows that the TLRY share price has crashed in the past few months. After peaking at $9.30 in April, it has plunged to $5.45 today. It has moved below the important support level at $5.96, its lowest level in April, confirming the bearish outlook.

The stock has remained below the 50-day and 100-day Exponential Moving Averages (EMA). Remaining below these averages is a sign that bears have prevailed today.

Tilray remains below the Ichimoku Cloud and the Supertrend indicator. Therefore, the most likely scenario is where it continues falling, potentially to the psychological level at $5. A move below that level will point to more downside towards $4.5.

However, it is worth noting that Tilray and other cannabis companies are often highly volatile when major news come out. As such, there is also a possibility that it will have a short squeeze.