Which Investment Is Worth the Risk?

Tilray Brands (NASDAQ: TLRY) and Bitcoin (CRYPTO:BTC) are not in the same league. First, Bitcoin is a leaderless cryptocurrency with many heralds but no real managers, and Tilray is a large global cannabis company, complete with management, operations, assets, and a roadmap for the future.

But for investors considering where to put their cash, both investments may seem to fall into the same category of very risky but potentially highly rewarding options. So let’s take a look and examine which of these two is more likely to grow, or at least less likely to lose your money if you decide to buy.

Tilray case

Tilray’s vision is to become the world’s largest cannabis business while also being a major competitor in the alcohol industry in North America and perhaps beyond.

Meanwhile, the administration has high hopes for marijuana legalization in the United States, as there is a deal in place that would give it a minority stake in a local marijuana business once federal legalization occurs. Similarly, its position in the EU is in the medical marijuana space, with the idea that Tilray will be the first provider to reach consumers once markets there open for recreational use.

To realize his vision, he will need to adjust his operations to produce more cash than it burns. In the fiscal quarter, it reported an operating loss of more than $82 million, despite recently concluding a cost-savings campaign in its Canadian domestic market. While management was trying to push the company to become free cash flow (FCF) positive on an adjusted basis before the end of this fiscal year, it abandoned that goal in its third-quarter earnings report.

Now it’s unclear exactly what the next steps will be. Legalization in the US and EU is not a guaranteed outcome, and recent reforms and other reform proposals have moved at the pace of (rather slowly) molasses in a cold January. It is possible to maintain market leadership in the EU’s medical segment and maintain its leading share in the Canadian recreational market.

But with the catalysts affecting the top line having an uncertain timeline and the bottom line still very painful, it will remain in risk territory for the foreseeable future.

Bitcoin looks good right now

Bitcoin, the king of cryptocurrencies, remains volatile and risky despite its legacy and widespread adoption. Moreover, since it is currently relatively close to its all-time high, bears tend to argue that the only direction they will go is directly down. After all, as critics say, the technology has no real-world use cases, and its pricing is largely a matter of runaway investor psychology and desire to speculate.

The story continues

As convincing as these arguments sound, they neglect to address the most fundamental aspect of economics: supply and demand.

Imagine a table with the price of a good on the Y-axis and the demand for the good supplied on the X-axis, which has appeared countless times in every economics textbook. Now imagine the demand curve line that starts at the top left and extends downward to the right, showing that as prices fall, demand for goods increases and vice versa. Next comes the supply curve, which starts at the bottom left and extends up and to the right, showing that as prices rise, more supply is encouraged to be created.

The point where the supply curve and the demand curve intersect is the equilibrium point. So what happens when supply becomes much more difficult to produce? The quantity supplied must fall, leading to higher prices for the same level of demand.

Due to the self-imposed limitations of the protocol, there is a limited number of bitcoins that can exist – 21 million to be exact. 19 million of these coins have already been mined, meaning they are at least nominally in circulation. The “halving” occurred in April, and miners will now only get half of the cryptocurrency with each new block they mine. So, what do you think will happen at that point within the framework of the supply-demand table?

If you said the price per coin would increase, that is essentially the textbook answer and many people are heavily invested in proving that answer is correct. Of course, the real world is much more complex than the simplest theoretical economic frameworks, and nothing is guaranteed.

Since the mining difficulty increase occurs mechanically after a certain number of blocks are mined, the market may already be pricing in the future impact as the rough timeline for this to occur has long been known. However, there is a clear potential catalytic event underway and this could lead to significant growth.

Decision

Right now, Bitcoin looks like a riskier investment than Tilray Brands.

While Tilray’s plans to legalize marijuana in the U.S. were indeed a major catalyst for the company, many marijuana stock investors got burned predicting that legalization was just around the corner. The political situation remains contentious, and Tilray’s ongoing operational inefficiency does not inspire much confidence that it can deliver solid returns.

Bitcoin may or may not gain significant value in the coming months. The thing is, its catalyst is now kicking in, rather than waning while subject to legislation or regulation, and that’s what makes it worth buying.

Should you invest $1,000 in Tilray Brands right now?

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in Bitcoin and recommends it. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.

Tilray Brands Stock vs Bitcoin: Which Investment Is Worth the Risk? originally published by The Motley Fool