Stock Analysis & Ideas

Will Tilray Hold Its Own in 2022?

Tilray (TLRY) used to be a top Canadian cannabis producer after entering into a reverse acquisition with rival Aphria. The company had the dual advantage of being more diverse and having its operations spread across multiple places in the world.

This was unlike most other pot producers in the United States. It was even termed as a Global Cannabis leader. However, last year, Tilray lost over 80% of its value. The legalization of marijuana in the United States might open up more avenues for the company in the coming days, but there is no certainty of its happening.

Moreover, the stock also involves a lot of risk and is only suitable for investors with a high-risk appetite. We’re bearish on the stock.

Tilray is a Canada-based cannabis and pharmaceutical company engaged in the cultivation, production, marketing, and distribution of medical cannabis products.

The company has several brands under its development and has recently given itself a new parent company called Tilray Brands to transition from a Canada-based licensed cannabis producer to a global consumer packaged goods company having a leading portfolio of cannabis and lifestyle CPG brands. 

There is a possibility that the Tilray stock might decline even more. The Canadian marijuana market is still too small and a lot of producers are vying for that market making it extremely competitive.

The company has been ramping up its presence in the United States these days and has also managed to obtain a significant presence in the United Kingdom. The United States is still a golden market for the company, because by 2025 it is expected to touch the $41.5-billion mark.

Tilray intends to introduce THC cannabis products into that market once marijuana gets federally legalized over there.

Michael Lavery, a Wall Street Analyst from Piper Sandler, reiterated a Hold opinion on the Tilray Stock two months back. He also lowered the price target on the company to $8 from $13 because of the intense competition in Canada.

Lavery believes Tilray stands out from competitors because of its direct access to the EU, even though Canadian market dynamics are weighing on momentum.

An Impressive Quarter

Tilray had impressive financials in its most recent quarter as well. The company reported a revenue of $155 million in the second quarter of Fiscal Year 2022, which is 20% better than the same period of last year, but had declined by almost 8% when compared to that of the previous quarter.

Over the past five years, the company’s revenues have steadily increased although the growth rate has kind of decreased. Besides, its net income improved by $6 million year-over-year, reaching $95 million, and the adjusted EBITDA was also positive at $13.8 million following an 8% year-over-year growth.

This was the 11th consecutive quarter of positive adjusted EBITDA for the company, although the 7% reduction in gross margin is quite a matter of concern.

Tilray has a Hold consensus rating on TipRanks, due to two Buys, eight Holds, and two Sells. The average Tilray price target is $10.12, which suggests 73.9% upside on the stock.

A Beneficial Merger

Following the reverse acquisition agreement with Aphria, Tilray was able to expand globally. The cultivation facilities in Portugal and Germany have helped the company get a stronger grip over the European market.

Notably, the company has realized more than $70 million in cost synergies, and expects to surpass its original target of $80 million much earlier.

Experienced Performer

The United States market for marijuana might not have opened completely as of yet but it does hold a whole lot of potential. Therefore, top marijuana players are trying their best to grab that market.

Unlike most rivals who are actually burdening their balance sheets by trying to expand in the U.S., Tilray is playing a different game altogether.

The company is exploring different international markets instead and through that experience, it is strengthening its core operations. It is believed by having such a strong approach Tilray will be in a better position to take advantage of all the incoming opportunities. Also, its wide experience in other markets would provide significant levels of insight to the company.

The most common problem of marijuana companies these days is that they have been continuously losing their monies. Tilray is no exception either and the company needs to drastically increase its revenues in order to attain profitability.

However, as the company’s shares are in a downward trend and significant levels of uncertainty still persist regarding its future profitability, it will be quite risky at this moment to invest in the company.

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