This Beaten-Down Stock Just Posted Record Revenue. Is It Finally Time to Buy?

Is Tilray Brands (NASDAQ: TLRY) finally turning things around? After terrible performances during the past five years -- when the business lost more than 90% of its market value -- the company has had strong momentum in the past six months.

Much of that was due to positive regulatory developments in the U.S. cannabis market, but Tilray's most recent quarterly update was also well received by the market, with the company's shares rising on the heels of its earnings release. Can the stock continue moving in the right direction?

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Zooming in on the quarterly update

On Jan. 8, Tilray reported its financial results for the second quarter of its fiscal year 2026 (ended Nov. 30). Among other things, the company noted that its $218 million in revenue during the period was a record for the quarter and came in well ahead of average analyst estimates.

That sounds impressive, but it's important to look at the details. Note that Tilray's top line only grew by 3% year over year. That's a lot less impressive.

Looking down at the rest of the company's income statement, there are even more mixed results. For instance, gross margin declined to 26% from 29%, even though Tilray reported a narrower net loss of $43.5 million, compared to the $85.3 million loss in the prior-year quarter.

Tilray's results were pretty decent, especially by the standards of the struggling cannabis industry. However, can the company keep improving?

What does the future hold?

Some investors are excited about Tilray's new market opportunity in the U.S. Last year, President Donald Trump signed an executive order that reclassified cannabis as a Schedule 3 substance (it was previously in Schedule 1). This change will have several ramifications, including:

• Easier access to financial services for cannabis companies that operate in the U.S.
• More medical research into marijuana (Schedule 3 drugs, unlike Schedule 1, are legally recognized as having potential medical benefits)
• The ability to deduct normal business expenses

Following these developments, Tilray is looking to expand its medical cannabis operations in the U.S. The company launched Tilray Medical USA after Trump's executive order.

This initiative could help the company expand its portfolio of medical cannabis products in the country while partnering with various players in the medical field to reach a broader pool of patients. That was much harder before, given that cannabis wasn't recognized as having any potential medical benefit before rescheduling.

However, it's worth pointing out that this is the model Tilray has used in other countries, but it hasn't made it profitable. Although the market opportunity will arguably be larger, it might also attract much more competition. There are plenty of well-established multistate operators in the U.S. that will also look to pounce on this large opportunity. Whether Tilray can be successful will depend on several factors, including whether it can develop a competitive advantage.

So far, the company has been unable to do so and has partly relied on acquisitions during the past five years to increase its market share. Further, cannabis remains illegal at the federal level, even after rescheduling. That means companies can't transport it across state lines, among other things.

Even full-blown legalization might not solve Tilray's problems, but it would be preferable to mere rescheduling. So where does that leave Tilray?

The company's recent momentum won't last long, in my view. I predict that Tilray's financial results will remain subpar and the stock will, once again, move in the wrong direction during the next five years. This is due to the remaining challenges in the cannabis market -- not just in the U.S., but also in the company's home country of Canada. That's why the stock still isn't worth investing in, despite its recent financial results and the momentum it has had during the past six months.

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.