Canadian pot producer Tilray (TLRY) has fallen from its massive run this year. But it completed its planned merger with Aphria, making it a far bigger cannabis company but one that has raised questions from analysts. So should you buy TLRY stock now?
The new combined company takes Tilray’s name, with Irwin Simon serving as CEO. Simon had been CEO of Aphria. Former Tilray CEO Brendan Kennedy will hold a seat on the new company’s board. The market value of both companies stood at nearly $8 billion at the end of April, still trailing Canopy Growth (CGC).
Along with their recreational businesses in Canada, the merger gives the combined company the old Tilray’s medical business in Europe and Australia — as well as its debt. It also folds in Aphria’s distribution business, which, rather than cannabis, had driven a majority of Aphria’s sales.
The deal also brings together a handful of U.S. businesses: Manitoba Harvest, a company owned by the old Tilray that sells hemp granola and CBD products, and SweetWater, “a leading cannabis lifestyle branded craft brewer” owned by Aphria.
Some analysts have questioned whether that infrastructure would be enough to capture more business in THC products, should the U.S. legalize cannabis on a federal level. Even as more states legalize, Canadian entry into the U.S., if it’s ever allowed, won’t be easy.
More immediately, Aphria last reported disappointing quarterly results, which it attributed to coronavirus lockdowns in Canada. But there were also signs that Aphria’s market share in the nation had slipped, even as sales in Canada’s cannabis industry grow.
But 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.
Below, we take a closer look at TLRY stock.
TLRY Stock Fundamental Analysis
Earnings growth is a staple of top stocks. But the EPS Rating of TLRY stock stands at 57, 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, when it existed on its own, 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.
TLRY Stock And The Election
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.
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.”
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.
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.
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.
Innovative Industrial Properties (IIPR), a profitable cannabis-focused real estate investment trust, has a 92 Composite Rating. Its EPS Rating is 94.
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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