It's not a secret: The cannabis industry has been a major disappointment since Canada legalized recreational use in 2018. Some companies in the industry diversified away from their cannabis operations as a result.

That was the case with Tilray Brands (TLRY 8.62%), which, through acquisitions, became one of the largest craft brewers in the U.S. But it remains a leader in the Canadian pot market and hopes that the legal landscape in other countries, especially in the U.S., will change.

Tilray's CEO, Irwin Simon, recently made a bold prediction along those lines. Let's see what he said and whether it warrants investing in this beaten-down stock.

Is legalization on the way in the U.S.?

Despite Tilray's switch to the beverages market, it still has a massive presence in cannabis. In the first quarter of its fiscal year 2025, ending on Aug. 31, revenue of $200 million increased by 13% year over year.

The company generated 31% of its revenue from its cannabis operation, which was second only to its distribution business -- the sale of pharmaceutical and wellness products -- in this department.

Tilray hopes that if marijuana becomes legal at the federal level in the U.S., it will be able to dominate the market for cannabis-infused drinks since it already has a business and distribution network in place thanks to its beverage-related acquisitions.

And according to Simon, legalization is just around the corner. He recently predicted in an interview that it will happen sometime during Donald Trump's second term.

If this prediction comes true, Tilray's stock will almost certainly soar, as will that of many other cannabis leaders. But would this scenario finally make the company's shares attractive?

It's still a long shot

The Canadian experience is instructive. One thing it taught us is that legalization does not guarantee the success of specific companies or even the industry as a whole. Over the past six years, Tilray's revenue and earnings have been inconsistent.

TLRY revenue (quarterly); data by YCharts.

To the extent to which the company has moved in the right direction, we can attribute much of that to acquisitions. Why did Tilray and other pot companies fail to be successful in Canada?

First, despite legalization, there were still stringent rules regulating the sale of cannabis products. Second, due to the (perceived) massive opportunity available, there was stiff competition for market share. Third, some consumers chose to continue what they had been doing all along: acquiring what they needed through illegal channels.

The case of Germany provides another example. The country recently legalized recreational use of cannabis for adults, but under stringent conditions. There can be no cannabis stores. To acquire the substance, people either have to grow it at home or join a club dedicated to this purpose.

Clubs have to obtain a license. No one can join more than one club; no club can have more than 500 members. No one outside a club can get cannabis from it, and no club can ship or deliver cannabis, among many other restrictions.

Even if the U.S. legalizes marijuana at the federal level, without knowing some important details it's difficult to predict what will happen and whether this will represent a massive opportunity for Tilray. And it might attract many more companies, just as it did in Canada.

It says nothing good about Tilray if the company needs legalization to become consistently profitable. And here we are assuming that legalization will happen, which is certainly not a sure bet despite Simon's predictions. What does this all mean for investors?

Tilray is a penny stock for a reason. The company's prospects look uncertain at best. It would be risky to initiate a position in the shares today even if we had assurances that federal cannabis legalization was on the way in the U.S. In short, it's best to stay away from Tilray.