Here’s What You Missed in Cannabis This Week

Tilray announces acquisition of Hexo along with quarterly results

In this week’s "Rising High," The Fly’s recurring series focused on cannabis and psychedelic stock news, The Fly looks back at a pair of earnings reports, plus big M&A news.

TILRAY RESULTS/HEXO DEAL: Earlier this week, Tilray (TLRY) reported earnings and revenue for the third quarter that were both lower compared to the same period a year ago, though the company noted it reported its 16th consecutive quarter of positive adjusted EBITDA. Along with the report, Irwin Simon, Tilray Brands’ chairman and CEO, stated, "During the quarter, we continued to focus on our highest priorities: sustaining and growing the top-line across core markets and geographies while optimizing the platform to achieve positive free cash flow on an accelerated timeline. We are executing on both fronts and delivered revenue growth despite challenging market dynamics across Canada, Europe, and the U.S, as well as our 16th consecutive quarter of positive adjusted EBITDA."

Meanwhile, Tilray announced that it entered into a definitive agreement to acquire Hexo Corp. (HEXO) for an aggregate purchase price of approximately $56M, to be satisfied through the issuance of 0.4352 of Tilray Common Stock for each outstanding Hexo share. The acquisition, which is structured as an arrangement under applicable Canadian laws, builds on the successful strategic alliance between the two companies and positions Tilray for continued strong growth and market leadership in Canada, the largest federally legal cannabis market in the world, Tilray said.

Following the announcements, TD Cowen cut the firm’s price target on Tilray to $5 from $9 and maintained an Outperform rating on the shares, saying the the announced acquisition was not much of a surprise since the two companies had established a collaborative framework on cultivation production and packaging last year. With cost-cutting ahead of the transaction, the firm has a high degree of confidence in targeted cost savings and while Canadian cannabis remains tough, consolidation should help.

Additionally, Roth MKM lowered the firm’s price target on Tilray to $2.50 from $3.00 and kept a Neutral rating on the shares after the announcements. The analyst cited the company’s Q3 sales and adjusted EBITDA miss while noting that the acquisition of Hexo is an "uninspiring transaction" that brings in more Canadian exposure. Upside for Tilray shares remains tied to U.S. legislative progress, but even if there is progress that would allow the company to take an equity stake in MedMen (MMNFF), there is no certainty that Tilray would find THC success in the market, the analyst told investors in a research note.

ORGANIGRAM RESULTS: On Tuesday, licensed cannabis producer Organigram (OGI) reported a year-over-year increase in second quarter revenue, with the company saying it maintained the third overall position among Canadian licensed producers in Q2. “We are pleased with our results in a quarter with typical seasonality. Our market position remains competitive, supported by our leading brand portfolio, strong international sales and customer-focused innovation,” said Beena Goldenberg, Chief Executive Officer. “Just 12 months after adding hash to our portfolio with the acquisition of our Lac Supérieur facility, we gained the number one position in the hash sector and launched SHRED X Rip-Strip Hash, the first product of its kind in Canada.”

Following the news, AllianceGlobalPartnersmaintained a Neutral rating on Organigram but lowered his price target on the shares to C$1.00 from $1.30, saying sales were below estimates. The firm lowered its sales estimate to reflect management’s share losses as part of its intentional decision to not compete with the price declines in the value segment, but looks for management to maintain margins above 30% with the potential fluctuation in EBITDA dollars.

Additionally, Canaccord reiterated a Speculative Buy rating on Organigram and cut its price target on the shares to C$2.25 from C$3.25. The analyst said that the price target cut comes after a period that saw a sizable drop in the company’s domestic adult-use contribution, while higher margin international shipments helped mitigate macro-level pressures in Canada.

Click here to check out recent Media Buzz Sentiment on Organigram as measured by TipRanks.

AGP NOTES GROWING CONSUMER TRENDS: In a sector note to investors, AllianceGlobal said that the consumer continues to "vote in favor of cannabis with their wallet," which gives the firm confidence in the long-term viability and growth of the category. In 2022, unit volumes were up 19% per BDA, excluding New Jersey, with more tempered sales due to pricing pressure and a strained consumer wallet from inflation, the analyst said. Furthermore, the analyst continues to see more consumers enter the category, as the latest NSDUH data showed 13.8% past-month incidence in 2021 among adults 21 and older, up 140 basis points from the prior year, with incidence growing or maintaing each of the past 14 years. AllianceGlobal noted that "onerous" taxes, regulatory limitations/delays, and a thriving illicit market in certain states all create near-term hurdles.

BOFA NOTES RETAIL STORE GROWTH: BofA highlighted in a research note to investors this week that, in March, cannabis store count in Canada rose by 52 to 3,741, indicating a 14% year-over-year boost in stores opened and operating. By province, 35 new stores were opened in Ontario, ten in Saskatchewan, six in Manitoba, and one in Alberta last month, the analyst noted. The firm added that the firm expects to see more net store closures as the year progresses and views fewer stores as positive given store overdevelopment in some areas.

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage Holdings (ACRHF), Aleafia Health (ALEAF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), Cannara Biotech (LOVFF), Chicago Atlantic (REFI), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), General Cannabis (CANN), BZAM (BZAMF),Greenlane (GNLN), Green Thumb (GTBIF), Goodness Growth (GDNSF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tryp Therapeutics (TRYPF), Trulieve (TCNNF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).

Keywords: cannabis, weed, stocks, marijuana, cultivation, legalization, CBD, THC, hemp