Tilray Brands (TLRY): A High-Conviction Bet on Cannabis Reclassification and Global Expansion

The cannabis industry is on the cusp of a seismic shift. With the U.S. federal government poised to reclassify cannabis from Schedule I to Schedule III under the Controlled Substances Act, the regulatory landscape is primed to unlock billions in new value for companies like Tilray Brands (TLRY). For investors, this is not just a regulatory update—it's a catalyst for redefining the long-term potential of a stock that has been unfairly punished by market volatility and short-term skepticism.

The Regulatory Catalyst: A Game-Changer for Tilray

The reclassification of cannabis to Schedule III would remove the IRS's 280E tax penalty, which currently bars cannabis businesses from deducting operating expenses. This alone could save Tilray millions annually, improving its cash flow and profitability. More importantly, it would pave the way for broader institutional investment, banking access, and FDA-approved cannabis-derived therapies. While the final decision remains pending, the scientific and legal groundwork has already been laid. The Department of Health and Human Services (HHS) and the DEA have both signaled support, and President Trump's recent comments suggest momentum is building.

For Tilray, this reclassification isn't just a regulatory hurdle—it's a golden ticket to scale. The company's international footprint, particularly in Europe, positions it to capitalize on a global market that's already embracing cannabis for medical and wellness purposes. Germany, Luxembourg, and Malta have all moved toward regulated access, while the Netherlands experiments with closed supply chains. Tilray's partnership with Italian pharmaceutical firm L. Molteni & C. dei F.lli Alitti Societa to expand medical cannabis extracts in Europe is a masterstroke. It's not just about selling product—it's about becoming a trusted name in a sector that's transitioning from stigma to science.

Strategic Diversification: Tilray's Hedge Against Volatility

Tilray's 2025 financials tell a story of reinvention. While its core cannabis segment saw a 9% year-over-year revenue decline, the company has offset this with explosive growth in non-cannabis verticals. Craft beverages and hemp-based wellness products now account for 70% of total revenue, a strategic pivot that insulates Tilray from the volatility of the cannabis market.

• Beverages: $240.6 million (up 19% YoY)
• Hemp-based products: $60.5 million (up 9% YoY)
• Cannabis: $520 million (down 9% YoY)

This diversification isn't just a stopgap—it's a blueprint for long-term resilience. Products like Mountain Shot mushroom-infused beverages and Whole Wheat Protein Crackers under The Humble Seed subsidiary showcase Tilray's ability to innovate beyond cannabis. These offerings tap into the booming wellness and functional food markets, which are growing at a compound annual rate of 12% globally.

Operational Efficiency: Tilray's “Project 420” Payoff

Tilray's cost-cutting and operational improvements under its “Project 420” initiative are starting to bear fruit. Gross margins improved to 44% in Q4 2025, up from 40% for the full year. This progress is critical for a company that's historically struggled with profitability. By streamlining its supply chain, integrating craft beer assets, and optimizing cultivation, Tilray is building a leaner, more scalable business.

The company's adjusted EBITDA guidance for 2026 ($62–72 million) reflects confidence in these improvements. While it's still unprofitable, the trajectory is clear: Tilray is trading at a 1.8x trailing revenue multiple, far below the 5.0x it could command if reclassification removes regulatory risk and unlocks institutional capital.

The Risks and the Rewards

No investment in Tilray is without risk. Regulatory delays, jurisdictional conflicts between state and federal laws, and market saturation in the U.S. could all derail its growth. The stock remains volatile, having plummeted 97.6% during the 2022 inflation crisis. However, the potential upside is staggering. If reclassification occurs, Tilray's revenue could double to $1.65 billion within three years, and its valuation could expand to $8.25 billion—a 400% upside from current levels.

Why This Is a High-Conviction Play

Tilray's strategic positioning is unique. It's not just a cannabis company—it's a diversified wellness brand with a global footprint, a pipeline of innovative products, and a regulatory tailwind that could transform the industry. The key question for investors is whether they're willing to bet on the long-term potential of a sector that's on the brink of mainstream acceptance.

For those with a high-risk tolerance and a long-term horizon, Tilray represents an undervalued opportunity. The reclassification of cannabis is a binary event that could unlock massive value. If it happens, Tilray's stock could see a 5x move. If it doesn't, the company's diversified revenue streams and operational improvements provide a floor for its valuation.

In a market that's obsessed with short-term results, Tilray is a rare blend of innovation, resilience, and regulatory foresight. For investors who can stomach the volatility, this is a high-conviction bet worth considering.