Back in September, I made a bold claim: Tilray (NASDAQ:TLRY) would outperform if Joe Biden won the 2020 election. Fast forward to November, and Tilray has surpassed its marijuana peers by leaps and bounds. Even with a recent 15% loss, TLRY stock is still up more than 75% since the call. It wasn’t just luck – it was understanding the levers that make the marijuana industry tick.

Now that the 2020 presidential election results are in, many investors ask themselves, “is it too late to jump into marijuana stocks?” Buying a company that’s up 75% in seven weeks, after all, seems a tough sell.

Once again, the future of Tilray rests on an election. This time, it’s Georgia’s U.S. Senate runoff in January that will determine TLRY stock’s fate. If Republicans win, Majority Leader Mitch McConnell (R-KY) will stonewall Democratic efforts to pass federal marijuana laws. That would doom Tilray to bankruptcy unless President Biden can broker an incredible decriminalization deal. But if Democrats pull off a surprising upset this January, Tilray stock could rise more than 1,000%.

In other words, take your profits in pot stocks for now. And the moment Georgia starts looking blue, jump back in immediately. Here’s why.

Why TLRY Outperformed

As I wrote in September, Tilray would outperform with a Biden win because of its high operating leverage, financial leverage and cost of goods sold. Its shares traded at a discount because, unlike rival Canopy Growth (NYSE:CGC), the company does not have high-margin branded products to lean on. And unlike better-capitalized Cronos (NASDAQ:CRON) (which has $3 cash per share), Tilray has massive debts that will need refinancing by 2023.

TLRY Stock - stock price since Sep 2020

In other words, Tilray is much like a homeowner who took out too large of a mortgage. Any “bad” news gets magnified into “horrible” news for the company. And on the flip side, “good” gets turned into “excellent.”

At the time, pollsters gave Biden a three-quarters chance of taking the White House – far from certain, but a relatively good wager. And when his team DID win, the TLRY’s cheap stock predictably outperformed.

TLRY Facing More Volatility

TLRY shareholders are still in for a bumpy ride. On Monday, House Majority Leader Steny Hoyer (D-MD) announced that Congress would finally vote on the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, a marijuana reform bill that would fully decriminalize the drug. The bill was sidelined by Republicans and moderate Democrats in favor of the more restrictive STATES Act.

Investors cheered, sending TLRY up 23% to $11.84.

But don’t celebrate just yet. While the Democrat-led House will likely pass the MORE Act, the Republican-controlled Senate will almost certainly block it during its lame-duck session. McConnell shelved similar legislation before; the MORE Act will be more of the same. Instead, the Republican Senator preferred to let states handle marijuana laws. And without federal approval, publicly listed companies can’t enter the U.S. marijuana market.

What’s Next for TLRY Stock?

Tilray’s fate now rests in the hands of Georgia voters. And forecasts for the January runoff don’t look favorable for TLRY stock.

Currently, Georgia looks set to split its two Senate seats. Polls show Republican David Purdue ahead of rival Democrat Jon Ossoff for one seat, while Democrat Raphael Warnock looks set to gain the other. That split would give Republicans a slim 1-seat majority in the Senate.

That’s terrible news for Tilray, a company that desperately needs federal marijuana legalization to operate in the U.S. Without that, the company’s massive $475 million convertible note issue due in October 2023 will likely sink the ship. Its Altman-Z score already sits at negative 1.15. (Any number below positive 1.8 signals financial trouble)

Can Tilray Survive?

Investors shouldn’t give up hope yet, though – much can happen between now and January’s runoff election. Georgia, a traditionally Republican stronghold, could become a potential repeat of Virginia, as a state that went from red to blue without stopping at purple in between. In other words, Georgia could send two Democrats to the Senate.

And even if Democrats fail to gain a Senate majority, executive orders could still sidestep a McConnell-led Congress. Two-thirds of Americans support decriminalizing marijuana.

Removing cannabis as a Schedule I drug, however, would require both a pot-friendly U.S. attorney general and head of Health and Human Services. The process could also potentially take several years – precious time that Tilray doesn’t have to spare given its weak cash position.

What Are TLRY Shares Worth?

Voters have already decided to turn the White House blue, pushing TLRY stock up 60%. Whether they choose to do the same with the Senate will be seen in January.

That means Tilray investors should take a breather before jumping back into the stock. We need more high-quality polling data from Georgia to make an informed wager – something investors can expect over the next several weeks.

And hear me say this: don’t take marijuana investing personally, whether you’re a Democrat or Republican. Tilray and other Canadian marijuana companies will only succeed if the federal government removes cannabis from the Schedule I drug list. If that happens, Tilray stock will skyrocket. A 2-stage DCF model that sets revenues at $7 billion by 2029 and 40% EBITDA margins puts fair value at over $95, a 1,040% upside. But without favorable legislation soon, Tilray’s debts will soon crush the company, sending the stock to zero.

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