Is Tilray’s (TLRY) New Deal with Novartis So Great?


Medical cannabis maker Tilray (TLRY) announced early Tuesday that it has entered into a global supply and distribution agreement for medical marijuana with pharmaceutical behemoth Novartis AG, in a move that indicates big pharma getting to the cannabis industry on a major scale.

Investors seem to be loving it, but Seeking Alpha Blogger Gary Bourgeault asks if the deal is just more hype or if it has substance. While some might see this big partnership as an advantage, the blogger notes potential danger in working with big business because of the demands big companies might deal with: “Where the issue lies there will be co-branding, where Novartis may gain much more of the benefit than Tilray; at least on the branding side,” the blogger explains. However, “as long as Tilray resists getting taken over by a larger consumer company, deals like this should be beneficial.” In other words, Tilray could lose some branding potential over the long term, though he does agree it could generate revenue in the near term. “Eventually, Tilray will have to differentiate and stand on its own with many of its products. If it is too dependent on Sandoz, that would be a negative over the long haul,” the blogger notes.

That said, the deal will allow Tilray to scale at the global level more rapidly than if it had just tried to do its own distributing. Second – it allows it to do so without putting too much of its own capital into distribution.

The most important point from the blogger, however, is the company’s actual bread and butter. How will it amp up the relatively small amount of production capacity the company has at this time? The blogger suggests Tilray scale production by making some acquisitions in order to meet the global demand for cannabis.

The bottom line? “Tilray is one of those pot companies an investor wants to like, but I do think it has gone too far ahead of itself and needs to pull back a lot more before it’s fairly valued. That said, I think it does have the management team and backing in place that can make it a good long-term holding for patient investors,” Bourgeault concluded. (To watch Bourgeault’s track record, (click here)

If we step back and look at the bigger picture, we can see that overall TLRY stock has a ‘Moderate Buy analyst consensus rating. In the last three months, the stock has received 2 Buy ratings and 1 Hold. With an average analyst price target of $140, analysts are projecting upside potential of nearly 81% from the current share price.

 

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