Tilray Brands Inc.'s chief executive tempered expectations a day after U.S. President Joe Biden revealed he will pardon people convicted under federal law of possessing cannabis and review marijuana's status as a Schedule 1 substance.
"It is important to recognize these initiatives for what they are: relatively modest, but any sign of progress is important at this time," Irwin Simon, head of the Leamington, Ont. cannabis company, said on a Friday call with analysts.
Biden's surprise Thursday announcement had Canada's pot industry buzzing because it has long hoped the U.S. would move toward loosening cannabis regulations and legalizing the substance on a federal basis.
The drug is legal for medical purposes in about 39 states and for recreational use in 19, including D.C. However, federal law still considers it a Schedule I controlled substance with high risk of abuse and no accepted medical use, placing it in a group with harder drugs like heroin, LSD and peyote.
Canadian and U.S. pot stocks rallied on the news, jumping between 20 and 30 per cent in many cases. Tilray's share price surged almost 33 per cent to $5.37, while rival Canopy Growth Corp. gained 23 per cent to $5.16 in late-day trading Thursday.
Tilray's share price dropped almost 11 per cent to $4.78 in morning trading Friday, while Canopy's dropped about 13 per cent to $4.49.
Pot companies have been eyeing the U.S. for years and Tilray has made inroads into the market with its acquisitions of SweetWater Brewing Company and Breckenridge Distillery.
The company has also bought enough of MedMen Enterprises Inc.'s convertible debt to turn into a minority stake upon U.S. legalization.
"From a U.S. standpoint, what we're going to continuously do is look at acquisitions in the consumer area with adjacency to cannabis," said Simon.
"We have a good balance sheet, we have good brands, we have lots of knowledge within this industry, and being one of the biggest out there gives us opportunistic ways to go about it."
But any U.S. moves could be hampered because the country has yet to pass the SAFE Banking Act. Passage of the act would offer safe harbour to financial institutions like banks and insurance companies, who provide services to cannabis businesses.
Analysts appeared split on whether Biden's Thursday moves would give the act a boost.
Jaret Seiberg, an analyst with Cowen Washington Research Group, lowered expectations of a cannabis bill to 60 per cent from two out of three and said he worries the moves could derail the SAFE Banking Act.
"At the least, it suggests a narrow bill that only applies to banking and insurance is most likely," he said, in a Thursday note to investors.
"This is because the president has already delivered social justice reforms."
Others felt oppositely.
"Our cannabis lobbyist considers this development bullish for the SAFE Banking Act during this lame duck session," wrote BMO Capital Markets' Tamy Chen, in a Friday note to investors.
"He believes President Biden's mass expungement may provide Senators Schumer and Booker with sufficient political cover to finally support SAFE."
In April, the House of Representatives passed Rep. Jerry Nadler's Marijuana Opportunity Reinvestment and Expungement Act, which would effectively remove cannabis from the U.S. list of controlled substances.
Senate Majority Leader Chuck Schumer has simultaneously introduced a comprehensive decriminalization bill, the Cannabis Administration and Opportunity Act.
Discussion of U.S. prospects came as Tilray reported a net loss of US$65.8 million in its first quarter, compared with a net loss of US$34.6 million in the same period last year.
Its basic and diluted net loss for the period ended Aug. 31 amounted to 13 cents per share, compared with a net loss of eight cents per share in the year prior.
Revenue for the three months ended Aug. 31 was US$153.2 million, compared with US$168.0 million in 2021.
Revenue was "muted" by about US$2.5 million because of a cyberattack that downed Ontario's pot distributor and a strike that halted deliveries to B.C. marijuana stores in August, said Blair MacNeil, president of Tilray's Canadian business.
Canadian cannabis revenue, which totalled $58.6 million compared with $70.5 million a year ago, would have been six per cent higher, if the company didn't have to contend with either disruption, he added.
"While the provincial boards did not open up additional delivery windows to make up for the shortfall, they did increase order sizes shortly thereafter to make up for demand," said chief financial officer Carl Merton, on the same call.
"As a result of our quarter end being so close to these incidences, we were not able to make up for the lost revenue this quarter but anticipate making it up next quarter."
This report by The Canadian Press was first published Oct. 7, 2022.
Companies in this story: (TSX:TLRY)
— with files from James McCarten in Washington
Tara Deschamps, The Canadian Press