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What investment is worth the risk?
Tilray Brands (NASDAQ: TLRY) and Bitcoin (CRYPTO: BTC) are not in the same league. On the one hand, Bitcoin is a leaderless cryptocurrency with many evangelists but no real stewards, and Tilray is a major global cannabis company, with management, operations, assets and a roadmap for the future.
But for investors wondering where to put their money, both investments could be considered in the same category of high-risk but potentially high-reward options. So let’s take a closer look at which of these two stocks is more likely to grow, or at least less likely to lose your money if you decide to buy it.
The case of Tilray
Tilray’s vision is to become the largest marijuana company in the world, while also being a major competitor in the alcohol industry in North America, and perhaps beyond.
Along the way, management has high hopes for legalization of marijuana in the United States as it struck a deal that will give it a minority stake in a domestic cannabis company when federal legalization occurs. Likewise, its positioning in the EU is in medical cannabis, with the idea that as markets open up to recreational use, Tilray will be the first supplier to access consumers.
To achieve its vision, it will need to rectify its operations so that they produce more cash than they burn. During its third financial quarter, it reported operating losses of more than $82 million despite recently concluding a cost-cutting campaign in its Canadian domestic market. As management sought to push the company to be free cash flow (FCF) positive on an adjusted basis before the end of this fiscal year, in its third-quarter earnings report it abandoned that target.
It is unclear what the next steps will be. Legalization in the United States and European Union is not a guaranteed outcome, and recent reforms, as well as proposals for other reforms, have moved at the pace of molasses in a frigid (pretty slow) January ). Maintaining its leadership in the EU drug market is possible, as is maintaining its dominant market share in the Canadian recreational market.
But with an uncertain timeline for catalysts affecting its top line, and with its bottom line continuing to suffer mightily, it will remain in risky territory for the foreseeable future.
Bitcoin looks good right now
As the king of cryptocurrencies, Bitcoin remains volatile and risky despite its long-standing and widespread adoption. Additionally, since it is currently relatively close to its all-time high, bears tend to argue that the only direction it is likely to go is down. After all, as critics say, the technology has no real use case, and its pricing depends largely on the psychology of runaway investors and their desire for speculation.
The story continues
As compelling as these arguments may seem, they fail to address the most fundamental aspect of economics: supply and demand.
Imagine, if you will, the graph that appears countless times in every economics textbook, with the price of a good on the Y axis and the demand for the good supplied on the X axis. Now imagine the line of the demand curve, which begins at the top left and slopes to the right, illustrating that demand for goods increases as prices fall, and vice versa. Next is the supply curve, which starts at the bottom left and extends upward and to the right, showing that as prices increase, the creation of more supply is encouraged.
The intersection of the supply curve and the demand curve is the equilibrium point. But what happens when supply becomes much harder to produce? The quantity supplied must decrease, which leads to higher prices at the same level of demand.
Due to limits imposed by the protocol itself, there are a limited number of bitcoins that can exist – 21 million, to be precise. 19 million of these coins have already been mined, meaning they are in circulation, at least nominally. In April, the “halving” took place, and miners will now only harvest half of the cryptocurrency with each new block they mine. And what do you think will happen at that point, in terms of the supply and demand graph?
If you say that the price per part will increase, that is indeed the standard answer, and many people are putting a lot of effort into making that answer proven. Of course, the real world is much more complicated than the simplest theoretical economic framework, and nothing is guaranteed.
The market could already be anticipating the future impact, as its approximate timeline has been known for a long time due to the fact that the increase in mining difficulty occurs mechanically after a certain number of blocks have been mined. Nonetheless, there is clearly a potential catalytic event underway, which could lead to significant growth.
The verdict
Currently, Bitcoin appears to be the better risky investment than Tilray Brands.
While Tilray’s marijuana legalization plans in the United States would indeed be a major catalyst for the company, many cannabis stock investors have been burned by predicting that legalization is just around the corner. The political situation remains contentious, and Tilray’s continued operational inefficiency does not inspire much confidence in its ability to generate strong returns.
Bitcoin may or may not appreciate significantly in value in the coming months. The fact is that its catalyst is working now rather than languishing under legislation or regulation, and that’s what makes it worth buying.
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Alex Carchidi has positions in Bitcoin. The Motley Fool posts and recommends Bitcoin. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
Tilray Brands Stock vs. Bitcoin: Which Investment is Worth the Risk? was originally published by The Motley Fool