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15th May 2022

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Is It A Buy As Lockdowns Weigh On Merger Partner?| Investor's Business Daily

Canadian pot producer Tilray (TLRY) has fallen from its massive run this year. It fell even more in April after Aprhia (APHA), with which Tilray is merging, reported disappointing quarterly results that were hurt by the coronavirus pandemic. Is there any reason to buy TLRY stock right now?




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Tilray, in February, reported fourth-quarter results that beat some expectations. And it became the rare weed company to hit its (albeit adjusted) profitability targets. With its plans to merge with Aphria, the company will likely become much bigger.

Moreover, a number of states — most recently Virginia — have legalized cannabis over the past several months. Democrats, which hold the White House, 50 Senate seats and a House majority, have signaled greater support for federal legalization.

But Canadian entry into the U.S., if it’s ever allowed, won’t be easy. And analysts have questioned whether Tilray’s merger with Aphria — which along with cannabis products will pack together a pharmaceutical distribution business, a craft brewer and a hemp granola maker — makes sense. Below, we take a closer look at TLRY stock.

TLRY Stock Fundamental Analysis

Tilray has tried to boost sales via its Canadian recreational business, international medical business — largely in Europe and Australia — and via Manitoba Harvest, which Tilray bought in 2019. Manitoba sells products like hemp granola and protein powders, as well as extracts with CBD, in the U.S. and Canada.

Earnings growth is a staple of top stocks. But the EPS Rating of TLRY stock stands at 59, with 99 being the best possible. Other marijuana stocks also have not-great profit ratings. The EPS Rating is a gauge of a company’s profit growth.

For the fourth quarter, Tilray said it delivered $2.2 million in adjusted EBITDA. In November, it projected as much, saying that it was “poised” to push the metric into positive territory in the fourth quarter.

When factoring out those adjustments, Tilray still lost money — two cents per share during the quarter. The company made $56.6 million in sales. International medical sales and recreational sales in Canada helped lift the top line. Still, TLRY stock fell on the results.

During Tilray’s earnings call, executives said they had made management changes at Manitoba Harvest, after hemp revenues slid. They attributed the decline to Costco’s (COST) move to private label products.

Tilray said Manitoba had been “extremely successful historically in Costco.” Along with Costco, Amazon (AMZN) and Whole Foods have been large customers for Manitoba.


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TLRY Stock And The Election

Tilray CEO Brendan Kennedy, in November, said legalization in New Jersey, one of the states that voted to legalize on Election Day, could turn neighboring states like New York and Pennsylvania legal, as states try to keep tax revenue within their borders.

On March 31, New York state legalized recreational cannabis though retail sales may not start until 2022 when a regulatory framework is established. Then on April 21, Virginia legalized adult possession of small amounts of recreational marijuana starting July 1, but retail sales must wait until 2024. There are now 16 states, plus the District of Columbia, that have legalized weed.

(Tilray)

As owners of TLRY stock and other marijuana stocks shift their focus toward U.S. legalization, Kennedy, in February, said he felt Tilray had an opportunity to enter the U.S. via the pharmaceutical route. That route would be similar to the company’s approach in nations like Spain, Portugal, France and the U.K. 

He also said the business model of current cannabis companies that operate in U.S. states might not be the one that prevails upon nationwide legalization. Those companies often run their own pot shops and production facilities. When they expand into new states, they have to build that infrastructure from scratch.

“The big question we have is which model is it going to be in,” Kennedy said of legalization in the U.S. “I have a pretty strong opinion that the existing MSO adult-use model is not going to be the model of the future.” He added: “I think it looks more like tobacco. I think it’s more like alcohol.”

He continued: “I also think that adult-use cannabis products will cross state lines. You will see interstate commerce. And I think that’s going to be extremely disruptive to entrenched players, extremely costly to entrenched players.”


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CBD Caution

However, Tilray has remained cautious on selling CBD in the U.S. While the U.S. has legalized hemp, a source of CBD, crackdowns on retailers by authorities have made businesses reluctant to sell products containing the substance.

Tilray in November said it would “address the federal CBD market upon further clarity from the FDA.”

Tilray is building a hub facility in Portugal to serve its international markets. But it warned that its business in the European Union, where more nations are legalizing medical cannabis, “may remain volatile” due to coronavirus-related restrictions in nations like Germany.


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Tilray Technical Analysis, Other Marijuana Stocks

TLRY stock began trading in July 2018 on the Nasdaq via an IPO. That IPO was the first on a big U.S. exchange from a pure-play cannabis company. But the stock largely fell between then and September of last year, as industrywide concerns about profitability, sales growth and cash grew more severe.

This year, shares soared as much as 711%, hitting a high 67 on Feb. 10, but they have since lost much of the year’s gains. The stock is not in a buy zone, and no new pattern has formed.

The Composite Rating of TLRY stock stands at 60, according to Marketsmith chart analysis. But IBD research says investors should focus on stocks with Composite Ratings of 90 or higher.

Tilray’s relative strength line, and shares overall, are off lows reached last year. The line spiked on Feb. 10, along with a massive jump in the stock. But the relative strength line fell from those levels afterward. TLRY stock is also below its 50-day line.

By comparison, Canopy Growth (CGC) has a Composite Rating of 25 and an EPS Rating of 5. Aurora Cannabis (ACB) has a Composite Rating of 31. Its EPS Rating is 30.

Innovative Industrial Properties (IIPR), a profitable cannabis-focused real estate investment trust, has a 94 Composite Rating. Its EPS Rating is 92.


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Is Tilray Stock A Buy?

Across the industry, marijuana stocks still face competition from the illicit market. Shares of Tilray are not in buy range.

Bottom line: TLRY stock is not a buy right now.

IBD advises investors to focus on stocks with stronger fundamentals that are moving into buy zones.

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2021-04-28 21:16:39


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