CM Market Insights

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A Big Week for Cannabis Stocks as Tilray (TLRY) Posted 110% Revenue Growth


Tilray (TLRY) is one of the most exciting companies in the cannabis space and we were interested to see how they were going to fair. This would be the first quarter showing sales from post legalization in Canada and would be Tliray’s year-ended fourth quarter. The company reported revenue increased 110% over the prior year to $43.1M thanks to dry bulk and new recreational sales in the legal adult use market in Canada. The company further reported a higher net loss as compared to the prior year with $67.7M net loss in 2018 compared to a loss of $7.8M in 2017.

Its always good to have some insight into the current financial climate of the industry and we were interested as to what type of guidance would be provided on the call. Given the recent partnership and acquisition activity for the company, it would be interesting to hear what the growth strategy would be going forward. We believe one of the more interesting comments made by CEO Brendan Kennedy on the call were his remarks with regards to his state of the market in Canada: “To capitalize on global growth opportunities in both medical and adult-use cannabis, Tilray will deploy capital in most promising markets where we see the greatest potential to pursue multiple paths to growth. The United States and European markets are orders of magnitude larger than Canada. So, while Canada will continue to be an important market for us, we expect to focus the majority of future investments on the U.S. and Europe. We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.” This is certainly notable as he believes the markets for the greatest growth are outside Canada, where many of the largest LPs, as measured by both market capitalization and production capacity are located.

As also noted in the conference call, a large part of the Tilray growth story will be its strategic partnerships and acquisitions. Despite not landing a large equity deal similar to its competitors, Canopy Growth Corp. and Cronos, Tilray has several other strategic partnerships which will assist them in their domestic and international growth.  Tilray and InBev will both be contributing $50M to work in conjunction to create a non-alcoholic beverage with THC and/or CBD components. Their other large deal with Sandoz AG (a subsidiary of pharmaceutical giant Novartis) is to co-brand medical cannabis products. InBev and Novartis are two of the biggest players in their respective spaces and we are interested to see how these partnerships will play out over both the short and long term.  The most notable acquisition of quarter was Tilray’s purchase of Manitoba Harvest for $317M. Manitoba Harvest is the world’s largest natural hemp producer. This acquisition is strategically beneficial as it gives Tilray them access to hemp farmers and the related distribution network.

There are clearly many exciting developments occurring at Tilray and they have become critical player in the industry. The earnings and revenue figures were not out of line with respect to many analysts’ predictions. We believe the true value in Tilray will be how well their strategic and partnerships and acquisitions are leveraged to grow their operations both domestically and internationally.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Disclosure: I/we are long TLRY. This article is for informational purposes only and should not be considered as professional investment advice.