Tilray's High-Stakes Bet: How Cannabis Rescheduling Could Reshape a $2.00 Price Target

The U.S. cannabis industry has long been a tale of two realities: explosive consumer demand and a regulatory framework that stifles profitability. For Tilray Brands (NASDAQ: TLRY), the stakes couldn't be higher. As the DEA's Schedule III rescheduling process teeters in legal limbo, the company's financial fate hinges on a single question: Will federal policy finally align with the market's optimism?

The Tax Trap and the Path to Liberation

Tilray's current financial structure is a textbook example of regulatory drag. Under IRS Section 280E, cannabis companies are barred from deducting ordinary business expenses, pushing effective tax rates to 60–80%—a crushing burden for a company already grappling with high debt and volatile margins. In 2025, Tilray reported an adjusted EPS of just $0.01, a figure that masks the true scale of its operational challenges.

However, a reclassification of cannabis to Schedule III would be a seismic shift. Analysts project that removing Section 280E restrictions could reduce Tilray's effective tax rate to 21%, unlocking $70–100 million in annual savings. Combined with normalized banking access (currently denied due to federal illegality), borrowing costs could drop from double-digit rates to mid-single digits, saving tens of millions more. These changes alone could transform Tilray from a cash-burning operation to a cash-generating entity.

Strategic Repositioning: Beyond the Greenhouse

Tilray's recent moves suggest it's preparing for a post-rescheduling world. The company has aggressively de-risked its balance sheet, reducing debt by $100 million and holding $256 million in cash. Its U.S. beverage alcohol division, now the fifth-largest craft brewer in the country, is a Trojan horse for future THC integration. With $240.6 million in annual revenue from this segment alone, Tilray is building a diversified platform that could pivot to cannabis-infused beverages as soon as federal rules allow.

Internationally, Tilray has expanded into Europe through a partnership with Italian pharma firm Molteni, targeting Germany's growing medical cannabis market. This geographic diversification is critical: while U.S. federal policy remains uncertain, European markets offer a more stable regulatory environment and higher-margin opportunities.

The $2.00 Price Target: Justified or Overhyped?

Jefferies' recent upgrade to $2.00 from $1.50 reflects confidence in Tilray's potential post-rescheduling. At first glance, the target seems ambitious. Tilray's stock currently trades at $0.75, and its 12-month price performance is down 38%. However, the math checks out when considering the projected financial tailwinds.

If rescheduling occurs, Tilray's EPS could jump from $0.01 to $0.15—a 1,400% increase—based on tax savings, lower financing costs, and revenue growth. Applying a conservative 10x P/E multiple to this new EPS would yield a $1.50 valuation. But with institutional investors increasingly viewing cannabis as a “next-gen consumer staple,” a 15x multiple (common for high-growth sectors) would justify the $2.00 target.

Risks and Realities

Skepticism is warranted. The DEA's rescheduling process is mired in legal appeals, and President Trump's administration has shown little urgency. Even if rescheduling passes, it could take years for the full financial benefits to materialize. Meanwhile, Tilray's Canadian operations face ongoing price compression, and its U.S. cannabis division remains unprofitable.

Yet, the company's strategic moves—debt reduction, international expansion, and product diversification—suggest it's hedging against these risks. The recent insider buying by CEO Irwin D. Simon and CFO Carl Merton also signals confidence in the long-term vision.

Conclusion: A High-Volatility Play with High Rewards

Tilray is a speculative bet, but one with clear catalysts. The DEA's decision is the wildcard; if rescheduling is finalized in 2026, Tilray could see a short squeeze from short interest (currently 17% of the float) and a re-rating by institutional investors. For those willing to stomach regulatory uncertainty, the potential rewards are substantial.

Jefferies' $2.00 target isn't a guarantee, but it's a reasonable extrapolation of the company's upside. Investors should monitor the DEA's appeal timeline and Tilray's cash burn rate. If the regulatory fog clears, this stock could become a 10-bagger. But patience—and a tolerance for volatility—will be key.