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13th May 2022

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Tilray Didn't Announce Its Last Quarter. The Numbers Weren't Great.

Cannabis plants are pictured in a greenhouse of Tilray medical cannabis producer


Patricia De Melo Moreira/AFP via Getty Images

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Without fanfare,

Tilray

filed financial results from its last quarter as a stand-alone business, before its May 3 merger with cannabis rival Aphria. Without a press release or conference call, in fact. As it happens, those March quarter results weren’t much to write home about.

The 10-Q filing shows that revenue in the March 2021 quarter slipped to $48 million, from $52 million in the corresponding 2020 period. The decline was in Tilray’s sales of hemp, the nonintoxicating variety of cannabis that Congress legalized in 2018—with high hopes and disappointing results for businesses that bet on the hemp-derived ingredient known as CBD. March 2021 losses at Tilray were considerable, as they were for most of Canada’s marijuana merchants.

The combined Aphria and Tilray are going forward under the latter firm’s name and stock symbol, so Monday’s 7% drop in Tilray (ticker: TLRY), to $15, reflects investors’ rating of the merged businesses, which will be led by Aphria’s former chief executive
Irwin Simon.
For its part, Aphria also reported a sales drop in its last stand-alone quarter of February 2021.

Both companies registered large losses in their last quarter’s reports. Most of those losses reflected noncash charges from the conversion of various securities ahead of the merger. At the “old” Tilray, March losses were $341 million, or $2.01 a share. Some $263 million of that loss came from revaluation of outstanding stock warrants, while another $45 million came from settling a lawsuit.

Other expense categories also rose in advance of the merger, in ways that investors should keep in mind when evaluating the combination’s future results.

Ahead of a merger, companies commonly accelerate spending on operating necessities, to lighten the load in postmerger periods and “spring-load” future profit margins. Tilray’s March quarter filing shows that its accounts payable jumped by more than $30 million, to $48 million at quarter’s end. Other accrued expenses rose by more than $20 million, thanks largely to a lawsuit settlement, to $60 million. By comparison, payables had shrunk by an average of $10 million in Tilray’s immediately-preceding two quarters, while other accruals had shrunk by an average of $5 million.

The jumps in the old Tilray’s March quarter spending could augur better profit margins—or at least narrower losses—when the “new” Tilray reports its May fiscal year results.

Write to editors@barrons.com

2021-05-10 19:24:00


www.barrons.com


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