Tilray (TLRY) is a cannabis cultivator with a presence in Canada and the U.S. I am bullish on the stock.
If any business can be the poster child of the rise and fall of North America’s cannabis market, it’s Tilray. Back in late 2018, everybody and his uncle was bullish on pot, and TLRY stock’s price reflected this rampant optimism.
Nowadays, you won’t find the Tilray share price hovering above $100 like it did in 2018. Instead, the loyal stockholders are struggling as TLRY stock fumbles and stumbles between $6 and $7.
As they say, the bigger they are, the harder they fall. Yet, let’s not assume that the share-price decline signals a dying company. Granted, there was a period of time in which Tilray struggled to turn a profit.
What about now, though? As we’ll discover, Tilray might be down but isn’t out of the cannabis game, as the company is still able to deliver positive surprises in challenging times. I am bullish on the stock.
A Good-Sized Business
Some traders might have thought that Tilray’s much-needed positive catalyst would be the potential passage of the MORE Act in the U.S. That’s the shortened name of the Marijuana Opportunity Reinvestment and Expungement Act. If it were to pass, the MORE Act would remove cannabis from Schedule I classification in the U.S., so it wouldn’t be federally considered illegal.
So, we have a “good news, bad news” type of situation here. The good news (for Tilray’s investors, at least) is that the U.S. House of Representatives recently passed the MORE Act. The bad news is that the MORE Act isn’t expected to get passed by the Senate.
Has this dampened the optimism of Tilray CEO Irwin Simon? Apparently, not at all, as the company still seeks to make a move into the emerging U.S. legalized cannabis market.
According to Simon’s calculations, by 2030, the U.S. cannabis market will be “a $100 billion business out there.” Moreover, “even if it didn’t go legal, it’s still a good-sized business. Consumers want cannabis legalized…so we need to be positioned for it when that happens.”
Granted, Tilray’s CEO predicts that U.S. cannabis legalization might not happen until at least 2024. Nonetheless, Simon is ready to pounce as soon as the market opens up legally for Tilray: “I need $2-3 billion of sales here in the U.S, so I just can’t sit back and wait for [legalization] to happen.”
A Surprise Profit
Let’s not get ahead of ourselves, though. Federal legalization of cannabis in the U.S. isn’t here yet. Even Tilray’s CEO seems to acknowledge that this decriminalization is a process that could take years.
Still, it’s encouraging to know that Tilray is prepared to make a move as soon as possible. In the meantime, though, is the company making fiscal strides?
That question came into focus recently when Tilray presented its financial results for the third quarter of Fiscal 2022. The analysts on Wall Street weren’t expecting much – but that’s not necessarily a bad thing, as low expectations can be a setup for positive surprises.
Indeed, a positive surprise arrived when Tilray posted quarterly adjusted earnings of 9 cents per share. That’s right: the company reported a profit. The analyst community was actually expecting Tilray to lose 8 cents per share during the third fiscal quarter.
The doubters can’t deny it: Tilray had a tremendous quarter. The company reported a 23% year-over-year increase in net revenue, reaching $152 million. On top of all that, Tilray announced a 31% year-over-year improvement in gross profit, totaling $39.8 million for the quarter.
A particular highlight of Tilray’s third fiscal quarter was the company’s 64% year-over-year growth in beverage alcohol revenue. Thus, when Simon said, “with infused bourbons or tequilas with THC or infused beers — there’s going to be tremendous demand there, and we’ll be ready for it,” he can back this claim up with Tilray’s financial data.
Armed with all of these impressive fiscal figures, Simon had every right to make a bold prediction. With supreme optimism, Tilray’s CEO declared the company’s “target for $4 billion in revenue by the end of Fiscal 2024.”
Wall Street’s Take
Turning to Wall Street, TLRY stock is a Hold based on two Buys and six Hold ratings assigned in the past three months. The average Tilray price target is $9.25, implying 47.5% upside potential.
The Takeaway
It’s encouraging to see how Tilray is getting ready for cannabis legalization in the U.S. Sure, this event won’t happen tomorrow or next week. Still, the company expects legalization to take place sooner or later and is preparing for this accordingly.
In the meantime, Tilray is firing on all cylinders with its current business segments. Even the naysayers must admit that 64% year-over-year growth in beverage alcohol revenue is nothing to sneeze at.
Overall, Tilray’s recent quarterly results should quell the doubts of the skeptics and get the bulls fired up. Posting a surprise profit when Wall Street’s analysts were bracing for a net loss was a major win for Tilray.
The only thing left to do, then, is to consider buying shares of TLRY stock. After all, given Tilray’s positive financial stats, a share-price turnaround is possible any day now.
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