3 Reasons I'm Still Not Buying Tilray Stock -- Even at Penny-Stock Prices

Penny stocks are publicly traded companies whose shares trade below $5 each. They may appear to be cheap, but many of them are anything but. Penny stocks are sometimes corporations that have lost substantial market value due to significant challenges. That describes Tilray Brands (NASDAQ: TLRY), a cannabis company, to a T. The pot grower has lost more than 90% of its market value over the past five years, but even at current levels -- shares are trading hands at a bit under $4 a piece -- the stock isn't a buy. Here are three reasons why.

1. Financial results have been mediocre

One key reason Tilray has underperformed broader equities is that the company has generally posted subpar financial results. Consider the company's most recent update, for the first quarter of its fiscal year 2027, which ended Aug. 31. At first glance, the results look strong. Tilray's revenue increased by 23% year over year to $257.1 million. That was a record first-quarter revenue for the company. However, there is more to the story. In March, the cannabis company acquired some of BrewDog's assets.

BrewDog is a U.K.-based craft brewing company. This acquisition had a material impact on Tilray's beverage segment. Revenue in that unit increased 82% year over year to $101.5 million in the company's Q1 2027. But how did Tilray perform if we put the acquisition aside? Consider that the company's cannabis revenue decreased by 13% year over year to $56.1 million.

Tilray's distribution business was an outperformer. It posted $84.3 million in revenue, up 14% compared to the prior-year quarter. And the company's wellness revenue of $15.3 million was essentially flat compared to the year-ago period. Tilray also posted a net loss per share of $0.32, after pretty much breaking even in the same period last year. Tilray's financial results were weaker than the top-line growth implied, and that's been the story for the better part of the last five years.

When Tilray posts strong sales growth, it is often (though not always) due to an acquisition. Meanwhile, the company has been consistently unprofitable, although, in fairness, it has made some progress on that front. Still, it is hard to envision a bright future for a company that has consistently struggled financially as much as Tilray has.

2. The industry's outlook is highly uncertain

Tilray has diversified its business in recent years, but the company's cannabis segment remains important. Unfortunately, the cannabis industry's outlook remains uncertain. True, the U.S. federal government recently reclassified certain medical cannabis products, and there have been hearings to discuss broader rescheduling.

In practice, this means that it will be easier to conduct research into the medical benefits of cannabis, and this could open up opportunities for Tilray and its peers. But there are still significant legal and regulatory barriers to contend with. For instance, it is still illegal to cross state lines with cannabis, which means pot growers generally have to build an entire supply chain -- from cultivation to retail -- in each state where they operate.

Even broader rescheduling may come with additional stringent rules and regulations. It's hard to predict these things, and that's exactly why investors shouldn't assume that the recent regulatory progress in the industry is what Tilray needs to turn things around.

3. Even the best-case scenario might not solve Tilray's problems

But what if cannabis is fully legalized at the federal level in the U.S.? The company's CEO, Irwin Simon, predicted this would happen during Trump's second term in office. Presumably, Tilray is well-positioned to capitalize if this happens. It has a portfolio of brands and the distribution channels available in the U.S. to hit the ground running. But even setting aside the fact that we aren't sure this will happen, it's also not clear that it would help the company bounce back.

It may fix some of Tilray's problems, to be sure, but it will likely introduce new ones, including stiff competition, perhaps from companies in other highly regulated consumer goods industries, such as alcohol and tobacco. Tilray may come out on top, perhaps by partnering with a cash-rich corporation. However, it's worth noting that cannabis companies that pursued this strategy after weed was legalized in Canada still failed to deliver competitive returns. That's why there is little reason to expect Tilray to bounce back and perform well, even if Simon gets his wish and cannabis is legalized at the federal level in the U.S.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.