Canadian cannabis concern Tilray (TLRY) got a big boost from earnings last week. The company reported that it grew its sales 8% in the fiscal fourth quarter of 2022, and grew sales 22% for the year as a whole.
Tilray wasn’t profitable, of course. Indeed, the company reported net losses of $458 million in Q4, and $434 million for the year as a whole. But investors forgave that oversight, keying in instead on management’s promise to produced between $70 million and $80 million in “adjusted EBITDA” in fiscal 2023, and to turn “free-cash flow positive in its operating business units” as well.
This week, Jefferies analyst Owen Bennett joined in the general good feeling about Tilray’s news, commenting that he saw “signs of Canadian improvement” in Tilray’s results, and was “impressed” with the performance of the company’s beverages and hemp delivery businesses — while also expressing some hope that Tilray will be able to capitalize upon its “industry-best” positioning in international markets.
Within Canada, cannabis sales to adults (i.e. recreational cannabis sales) seem to have declined 27% sequentially in Q2 and 13% in Q3 — but rose 4% in Tilray’s Q4.
Outside of Canada — but inside the U.S. — Tilray’s beverages sales grew 16% sequentially, with sales expanding into new states, and with strong profit margins of nearly 60% on those sales. Hemp sales were up 10% sequentially, and Bennett sees Tilray expanding its operations further into sales of CBD — a potential $1 billion market, according to the analyst.
Farther abroad, the picture isn’t as pretty, with “international” sales declining 11% sequentially, “largely due to curtailed shipments to Israel.” Still, Bennett believes that Tilray’s 20% market share in Germany for example, where recreational marijuana sales should become legal in 2024, holds promise. Bennett says he is assigning “meaningful” value to this future business.
Speaking of dollars (and cents), Bennett observes that Tilray has already cut $100 million from its cost structure, which helped gross profit margins to improve 131 basis points sequentially in Q4. He further expects to see nearly $100 million more ($98 million to be precise) in “advisory fees and shared synergies” saved from Tilray’s purchase of Hexo over the next four years.
Based on these assumptions, and last week’s results, Bennett says he’s expecting Tilray to produce $670 million in sales this year, with “adjusted” gross margins of 35.1%, and earnings before interest, taxes, depreciation, and amortization of $69 million.
It’s worth pointing out that both this EBITDA number and the revenue number are lower than what Bennett was previously projecting for Tilray. It’s also worth noting that $69 million in EBITDA actually falls below the entire range of Tilray’s own guidance for the coming year. Nevertheless, Bennett is sticking with his buy rating on Tilray stock, and trusting that management will be true to its word on free cash flow at least, generating positive FCF in 2023. (To watch Bennett’s track record, click here)
Most on the Street are not in Bennett’s bullish corner when it comes to Tilray, with TipRanks analytics exhibiting the stock as a Hold. Based on 9 analysts polled over the last 3 months, 3 rate TLRY a Buy, 5 issue a Hold, while just one suggests a Sell.
But TipRanks might as well have said “buy” — because analysts, on average, think the stock, currently at $3.90, could zoom ahead to $5.49 within a year, delivering ~41% profits to new investors. (See TLRY stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
