Tilray (NASDAQ:TLRY) stock is giving up gains after completing its monumental merger with Aphria.

The merger has created the world’s largest cannabis company by Pro-forma revenue. After peaking at $67 in early February, shares are down. It will open today at around $22.

Now that the dust has settled on the merger, one can make an honest assessment regarding the future of the business.

If you keep up with InvestorPlace articles, you will know that a substantial amount of column space has been dedicated to the merger arbitrage opportunity at the heart of the matter.

However, the latest quarterly report highlights how Tilray still has its work cut out for it. Moreover, it is a sobering reminder that TLRY is not a world-beating stock, despite what subreddits will have you believe.

Finally, without more news on the U.S. legalization front, TLRY, along with other prominent Canadian players, will remain in trouble.

Financials Paint a Sorry Picture

Interestingly, Tilray reported its latest quarterly financial results without issuing a press release or holding a conference call. The lack of fanfare is justifiable. Tilray’s final quarterly financial report as a stand-alone business is not something to write home about.

Revenue fell to $48.02 million from $52.1 million. It missed consensus estimates by a wide margin. It is nothing new for the company since it has topped consensus revenue estimates just once in the last four quarters.

The average net selling price per gram decreased by 5% in comparison to the year-ago period. The average price per unit for hemp products fell by more than $4.50 compared to the prior quarter.

Commenting on the merger itself, the company said it would focus on execution high-return priorities such as business integration and global growth strategy.

However, investors are not biting. Many cannabis companies are deeply unprofitable, and Tilray is no different. The merger is exciting news for the industry, but until we see some numbers, price appreciation will not happen.

How Legalization Could Impact the Markets

The United States is now sandwiched between two countries that have passed federal cannabis reform. However, the U.S. itself remains the holy grail for the cannabis sector. Legal sales hit a record of $17.5 billion last year, a 46% increase from 2019.

More people are consuming more cannabis than ever before, and the legal markets just cannot keep up with demand.

Illicit cannabis sales are calculated to be over $100 billion each year. Much like in Canada, the black market is far more organized than the formal one.

So, it is no longer a question of “if,” but of “when” the U.S. will enact cannabis legalization at the federal level. There is too much money on the table, and you do not want the black market to have the biggest piece of this pie.

However, timelines are sketchy at this point. We do not have a firm date regarding when that will happen. The MORE Act was passed in the U.S. House of Representatives in December but was not taken up for a vote in the Senate.

It proposes making recreational marijuana use legal, and it would have a massive impact on the marijuana markets in the states that currently allow sales and consumption.

But again there is no firm date and retail traders are balking.

In the run-up to the elections last year, we saw several high-profile names like Canopy Growth (NASDAQ:CGC), Aurora Cannabis (NASDAQ:ACB), New Age Beverages (NASDAQ:NBEV), and Sundial Growers (NASDAQ:SNDL) gain a lot of momentum on the way to Joe Biden’s victory.

Since that time, though, the gains have evaporated. I do not believe we will see a swift reversal anytime soon.

My Final Word on TLRY Stock

The sheer size of the surviving entity is enough to keep me interested. However, the larger issue of cannabis legalization in the U.S. and its timing keeps me on the fence. If we do not see any traction on this subject soon, shares will continue to meander along.

Tilray now has a lot of geographic diversification and a strong platform to capture more of the market. It is one of the biggest diversified marijuana, hemp and beer companies in the world.

In Canada, the company will control 19% of the recreational cannabis market and it will be a major player in Europe as well. That much will not change no matter what happens in the States, but it needs to work hard on improving fundamentals.

The Canadian cannabis sector is notorious for overpromising and underdelivering. TLRY stock does not want to get the same reputation so soon after completing the blockbuster merger.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.