It looks like the post merger bump enjoyed by Canadian cannabis producer Tilray (NASDAQ:TLRY) stock has come to an end.

TLRY stock had enjoyed a 62% run-up between mid-May and mid-June after it finalized its merger with former rival Aphria.

The deal made Tilray the largest Canadian cannabis producer with annual revenues of $1 billion and a 17% share of the North American retail market for the recreational drug.

Tilray is now bigger than both Canopy Growth (NASDAQ:CGC) and Aurora Cannabis (TSE:ACB).

Yet after reaching a post-merger peak of $21.43, the share price has fallen back 39% and now trades at a little over $13, the same level it held before the combination with Aphria.

This has left many investors wondering what it will take for Tilray to achieve sustained long-term growth,

The Bulls and TLRY Stock

The deflation in TLRY stock over the past two months has also frustrated industry analysts who are extremely bullish on Tilray and its long-term outlook.

Wall Street observers like that Tilray’s management team is focused on expanding into the U.S. market, where it sees big opportunities as more states legalize recreational cannabis.

To date, more than 20 states have legalized the drug for recreational use. Tilray has been taking steps to grow its presence in America.

It acquired convertible notes that would allow it to take a 21% stake in California-based MedMen Enterprises (CNSX:MMEN) once cannabis is legalized at the federal level in the U.S.

Tilray says it eventually wants to control 30% of the North American cannabis market. While analysts applaud that goal and say it is achievable under the right conditions, to date full entry into the U.S. market remains a roadblock.

Tilray isn’t alone. Lack of U.S. legalization has stymied the ambitions of Canadian cannabis companies, all of which look longingly at the American market that is 30 times bigger than the market in the Great White North.

While legalization by individual states is a step in the right direction, the U.S. market remains off-limits to Canadian cannabis producers until such time as federal legalization happens in Washington, D.C.

While hope remains that something could happen at the federal level, President Biden has not made cannabis legalization a priority agenda item.

Looking Beyond the U.S. Market

Tilray isn’t betting the house solely on U.S. legalization. The company is also taking advantage of opportunities abroad, notably in Europe.

Tilray has grown its presence in markets such as Germany and is entering new markets where cannabis use has been “decriminalized,” such as Israel and Portugal.

However, those overseas markets are only now starting to open to cannabis use and the industry in those countries remains fledgling and uncertain. It will be sometime before Tilray is operating in a mature market outside of Canada.

Additionally, Tilray’s earnings have continued to be a bit murky. The company appeared to deliver a surprise profit for its first quarterly update following the merger with Aphria.

The company announced net income of $33.6 million, or $0.18 per share. That was a major improvement from the net loss of $84.3 million, or $0.39 per share, in the prior-year period.

However, on closer look, the earnings were not as good as they seemed. Tilray’s revenue for its fiscal fourth quarter came in below analysts’ estimate of $199 million and Tilray actually posted an operating loss of $73.7 million.

The company was able to achieve a profit only because it recorded $121.5 million in non-operating income.

Even the MedMen partnership is not as great as it seems at first blush. This is because MedMen has struggled with mounting losses and its market value has fallen to less than $200 million today.

The company operates 25 retail stores and expects to open about five more this year providing finances allow.

Don’t Buy TLRY Stock Until U.S. Legalization Happens

Should cannabis legalization happen at the federal level in the U.S., investors can expect Tilray to storm the market with both guns blazing. Until that happens, and cannabis legalization accelerates across other jurisdictions around the world, TLRY stock is not a buy.

And it is not just Tilray. The entire Canadian cannabis sector is stuck in limbo for the time being while it awaits access to its larger southern neighbor.

While the Aphria merger succeeded in giving Tilray greater scale and market share, it did not necessarily boost its sales long-term. That will only come once lawmakers in Washington make cannabis legalization a priority.

Until then, Tilray stock should remain on investors’ watchlist.

Disclosure: On the date of publication, Joel Baglole 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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.