Canadian cannabis products firm Tilray (TLRY) has formed a strategic partnership with rival Canadian company Hexo which could lead to stock ownership.
The deal announced 3 March did not particularly impress the market and today (7 March) the Tilray price is close to an all time low. Under the deal Tilray will buy up to US$211m worth of Hexo convertible bonds which would allow it to buy stock at C$0.9 and “acquire a significant equity ownership position”. Hexo stock is currently C$0.73 and has been on a long bearish trend.
Irwin Simon, Tilray’s chairman and CEO, said the pair had complementary brand portfolios adding: “We also expect to realise further commercial and production efficiency savings of up to C$50 million within two years.”
The US, of course, is the big potential market on its doorstep but under federal law it is still illegal and under Nasdaq rules listed companies are forbidden from selling it. It has been trying through acquisitions such as brewery SweetWater Brewing Co to set up some infrastructure and bond deals with cannabis retailer MedMen Enterprises for as and when the drug is legalised.
Is there any upturn to come or can we expect to see further reductions this year?
This article looks at what has been driving down the Tilray share price and some analysts’ latest Tilray share price forecast.
How did the stock perform in 2021?
The TLRY share price started the year at $8.43 before surging more than 700% to hit a peak of $67 on 10 February. The stock skyrocketed thanks to plenty of attention on social media platforms such as Reddit and Twitter.
The retail crowd turned their attention to Tilray ahead of the merger between Tilray and fellow medical marijuana company Aphria, as well as a more favourable political landscape for cannabis producers in some countries. After the US elections in 2020, the Democrats held both the White House and a majority in Congress, boosting optimism that marijuana could be legalised at federal level.
However, the hike was unsustainable and the TLRY share price has trended lower since, losing 83% and hitting a nadir of $10.01 on 18 October.
There have been several attempts to push higher. There was a short-lived 62% rally between mid-May and mid-June after Tilray finalised its merger with Aphria. The deal turned the company into the largest Canadian marijuana producer, boasting a 17% share of the North American retail market with annual revenues of $1bn. The stock rallied to a high of $21.43 per share on 9 June before quickly giving up those gains and extending losses towards $10.
After finding a floor at $10 the share price rebounded, rising 39% between mid-October and mid-November. However, once again the rally higher proved unsustainable and the price quickly moved lower again.
What did we learn from fiscal Q2 2022 results?
On 10 January 2022 Tilray reported its second quarter results and showed a profit of $6m, an improvement on the $89m loss in the same period last year. Net revenue increased around 20% on the same period last year to $155m.
The revenue increase was driven by 7% growth in cannabis revenue to $58.8m, net beverage alcohol revenue of $13.7m from SweetWater, and wellness segment revenue of $13.8 million from Manitoba Harvest.
Irwin Simon, Tilray’s chairman and chief executive officer, said “Our second quarter performance reflects notable success building high-quality and highly sought-after cannabis and lifestyle CPG brands which, coupled with our scale, operational excellence and broad global distribution, enabled us to increase sales and maintain profitability despite sector-specific and macro-economic headwinds.”
The Company also announced a new parent name, Tilray Brands which, it said, was to reflect the company’s evolution from a Canadian LP (limited partnership) to a “global consumer packaged goods (CPG) company powerhouse with a market leading portfolio of cannabis and lifestyle CPG brands.”
Tilray’s fiscal Q1 2022 results
On 7 October 2021, Tilray reported fiscal first quarter results for the period ending 31 August and there was plenty for shareholders to cheer. Net revenue jumped 43% compared to the same period last year. Along with being the largest share of the recreational and medical cannabis markets in Canada, the firm is also the market leader for medical cannabis in Germany. While it doesn’t sell cannabis in the US yet, it is raking in some revenue from beer sales through its SweetWater Brewing Company subsidiary there.
Meanwhile, Tilray also announced $55m in cost-saving synergies from its merger with Aphria, which have gone some way to boosting gross profits by 46% year-on-year to $51m, up from $35m the same period last year. While this is an encouraging number and certainly shows that Tilray is on the right track, the firm still isn’t anywhere near turning profitable. In fact, net losses widened to $34.6m from $21.7m.
In the last quarter quarter, Tilray also completed its acquisition of amendable convertible notes in MedMen, an American cannabis company. However, this would only happen in the case that cannabis is legalised at federal level in the US and even then, Tilray would only own a 21% stake of the company, a small percentage of what is expected to be a huge growth industry.
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Currently, 36 states and the District of Columbia have legalised the medical use of marijuana. Meanwhile, 18 states along with DC have legalised the recreational use of cannabis. Marijuana remains illegal under Federal Law.
While Tilray continues to wait for cannabis legalisation in the US, the firm is expanding worldwide, particularly in Europe. In the lastest Tilray stock news, the company announced that it had been selected by the Luxembourg Ministry of Health as a certified medical cannabis supplier for the country’s medical cannabis programme. Irwin D. Simon, chairman and CEO, commented following the announcement.
“We believe that Tilray’s growth potential in the European Union represents a $1bn opportunity, and today’s announcement affirms that we are turning potential into performance. With today’s validation from the Luxembourg Ministry of Health, Tilray now offers branded medical cannabis in 20 countries around the world – a testament to our high standards and status as a trusted partner to patients in need.”
In his interview with New Cannabis Ventures, CEO Simon Irwin said that Tilray could generate $4bn of sales in Europe by the end of 2024. However, it’s important to note that these markets are only just starting to open up to cannabis, making them both small and uncertain.
Covid-19 has been a headwind for Tilray and this could continue to be the case for some time. Tilray management highlighted Covid as the cause of lower net revenue, particularly in Germany. Covid cases in Europe are rising again as winter approaches, which could continue to hamper revenue going forward.
On 8 December Tilray announced what it called the “strategic acquisition” of Breckenridge Distillery, a distilled spirits maker, as part of its ongoing plan to leverage “our growing portfolio of US CPG (consumer packaged goods) brands to launch THC-based product adjacencies upon federal legalisation in the US.”
On 21 January it announced it had expanded its medical cannabis product offering in Australia.and created a new medical cannabis e-learning platform for healthcare providers. The move follows its efforts in Germany where it is claiming a 20% market share.
On 17 February Tilray announced that its medical cannabis division had made its first sale of medical cannabis in Malta.
Where do the experts see Tilray heading in 2022 and beyond?
Tilray shares continue to come under pressure despite revenue growth and margins trending in the right direction. The stock holds number one position for market share in Canada, which leaves little room for opportunity. In fact some analysts believe that the stock is dependent on legalisation in the US for meaningful growth.
In her Tilray stock price forecast, Claudia Valladares, financial adviser at Kovar Wealth Management, highlighted this point in her note to Capital.com: “Tilray’s share price heavily depends on what the government will decide on cannabis. If they decide to make it legal, then Tilray’s share price will likely increase. It’s a risky investment, speculative but it’s currently at a reasonable price if an investor wanted to get their feet wet in this industry.”
Emily Flippen, senior market analyst at The Motley Fool, is downbeat regarding the outlook for the stock when speaking to Capital.com.
“Tilray is one of the most widely held cannabis companies, especially amongst retail investors, but its risk still outweighs the potential for reward. Unlike many of its US-based competitors, Tilray has not been able to generate positive operating income, has taken on substantial levels of high-interest debt, and has a history of impairments and asset write-downs. While Tilray has attempted to “roll up” many of its competitors in the industry, these actions have historically resulted in significant shareholder dilution and substantial losses. Tilray’s share price is notoriously volatile, so predicting where it may be over the short-term is a fool’s errand. However, what we do know is that management has a poor track record for long-term shareholder returns and serious financial concerns still plague this business. Investors can do better than Tilray.”
Analysts at Barclays initiated cover on the stock in mid-November classifying the stock as underweight. The analysts set a target price of just $10. The Tilray share price fell over 18% across the course of that same day.
As of 7 March, according to MarketBeat, 13 analysts had issued ratings on Tilray over the past 12 months. Five of them issued a buy rating, seven issued a hold rating and one issued a sell rating. The result was a hold consensus rating. The average one-year Tilray share price forecast is $11.04. The high price target is set at $23, while the low is at $7.
According to the algorithm-based forecasting website WalletInvestor on 7 March, the stock could continue to decline and in 12 months’ time fall to $4.75. The service’s Tilray stock prediction was that by March 2027 the stock would be effectively worthless.
Meanwhile, forecasting service AIPickup’s TLRY stock forecast is relatively flat, projecting that the price will reach $5.98 by 2025 and then land at $7.71 by 2030.
However, it is important to note that analysts and web forecasting services can and do get their predictions wrong. It is always recommended that you carry out your own research and stock analysis taking into account current market conditions.