During the past five years, the reality of the cannabis industry has not lived up to the hype that accompanied Canada's historic legalization of pot for recreational use in 2018. Cannabis stocks have largely generated abysmal returns during much of that time. Tilray Brands (TLRY 1.79%), a leader in the sector, is no exception. However, the company has made significant changes to its business recently and continues to plan for the future in case cannabis legalization progresses. With that in mind, could Tilray's performance during the next five years be much better than it was in the past five?

An optimistic scenario

Tilray has become a larger and more diversified company primarily through acquisitions. The pot grower is now a leading craft brewer in the U.S. Of course, it still holds a strong position in the Canadian cannabis market and has operations in Germany. However, the U.S. market has the potential to be the most lucrative for it, and in the next five years, there could be progress on the legalization front. Tilray Chief Executive Officer Irwin Simon recently said that he believes recreational cannabis will be legalized at the federal level during Donald Trump's presidency.

Let's suppose that happens. Depending on the details, legalization could open up a world of opportunities for Tilray within the recreational-use market, where it already has established operations. Further, the company could leverage its position as a craft brewer to dominate the market for cannabis-infused beverages. Even under the most optimistic scenario, all of that wouldn't happen in just five years. But Tilray could, at the very least, put itself in a position to succeed well beyond the next half a decade. The company could also make progress in Germany, where it estimates it has a $3 billion opportunity in the medical cannabis market.

TLRY Revenue (TTM) data by YCharts.

Tilray's trailing 12-month revenue was just shy of $830 million, so there is plenty of room to increase its top line, partly thanks to the German market. So, if things work according to Tilray's master plan, the company will become much more attractive in the next five years.

Let's be more realistic

Will the federal government actually legalize cannabis for recreational use in the U.S. in the next four years? Though Simon is optimistic, there are no guarantees. Even with legalization, however, it's unclear whether that would solve most of Tilray's problems. Here are three reasons why.

First, legalization might come with stringent regulations that render the market difficult to navigate. Second, legalization could attract many new market entrants, including some with much more resources than Tilray, denying it market share. Third, illegal cannabis channels might continue to thrive, posing a serious problem for the legitimate companies. These are issues Tilray has encountered in Canada and Germany. So, how much will things evolve in five years? Leaving aside the question of legalization in the U.S., my view is that the cannabis market will continue to be extremely challenging.

Tilray is a leader in the sector, so I expect its revenue to continue rising. However, whether it can consistently increase sales rapidly enough to break out out of penny stock status is another question. Further, Tilray remains unprofitable, and given its uncertain prospects, it could struggle to turn the corner. In short, Tilray's fundamentals might not change significantly by 2030, even if the cannabis sector benefits from more legislative wins. That's why the stock is still not worth investing in today.