Canadian cannabis producer Tilray (TLRY) is expanding its product base and improving its bottom line. With new acquisitions and the stock off its 52-week low, is TLRY stock a bargain buy now?
Shares of cannabis stocks soared Wednesday in heavy volume on news that the U.S. Department of Health and Human Services is recommending that cannabis be rescheduled from a Schedule 1 to a Schedule 3 substance. Cannabis obtained the classification back in 1970.
Schedule 1 drugs include heroin and LSD and are said to have “no currently accepted medical use and a high potential for abuse,” as defined by the U.S. Drug Enforcement Administration.
Schedule 3 drugs are considered to have “moderate to low potential for physical and psychological dependence,” according to the DEA. The lower-class Schedule 3 drugs also do not have interstate restrictions like Schedule 1 drugs have and come with some business tax advantages.
In separate news, Tilray announced Wednesday its new diamond-infused pre-rolls under its RIFF brand to be sold in select regions in Ontario, Canada.
Markets Continue To Expand
This follows Maryland’s new recreational legalization that began on July 1, after voters approved recreational cannabis use by those 21 or older on Nov. 8. Maryland will tax recreational pot at a 9% rate, while medical marijuana is tax-exempt.
Meanwhile, Illinois posted a record $140 million in sales of recreational marijuana sales in July. Illinois Gov. J.B. Pritzker boasts that legal cannabis provided 30,000 jobs in Illinois. The state’s taxable pot sales topped $1.5 billion in 2022.
States collectively generated more than $15 billion in adult-use marijuana tax revenue from 2014 to 2022. Pot-legal states raked in about $3.8 billion in cannabis tax dollars in 2022 alone.
TLRY Stock Rallies
Tilray shares soared nearly 11% Wednesday in heavy volume on the news. The stock reclaimed its 200-day moving average.
TLRY stock skyrocketed over 30% on Aug. 8 in heavy volume following a deal with Anheuser-Busch, retaking its 200-day moving average for the first time since December. The move was short-lived as it sold off the following two days to fall back below the 200-day line.
TLRY stock hit a 52-week low of 1.50 on June 21.
Its decline has been spectacular. Tilray went public in July 2018 at 17 a share and peaked exactly at 300 in September 2018. It’s now back around 2 a share.
Tilray shares have improved from their lows and are down about 1% on the year after pulling back from their Aug. 8 rally. TLRY stock has fared much better than competitors Canopy Growth (CGC) and Cronos (CRON), which are down about 80% and 26%, respectively.
Tilray Adds New CBD Drinks And Busch Beer Names
On Aug. 24, Tilray debuted its new carbonated CBD drinks under its Solei brand in Ontario, Quebec and Alberta, Canada.
Tilray announced on Aug. 8 that it entered into an agreement to buy eight beer brands from Anheuser-Busch (BUD) for an undisclosed cash amount. Brands in the deal include Shock Top, Breckenridge Brewery, Blue Point Brewing Company, Square Mile Cider Company and HiBall Energy.
The transaction includes breweries and brewpubs associated with the brands, according to the Wall Street Journal. The deal is expected to close sometime this year.
Tilray Brands subsidiary Montauk Brewing announced on Aug. 2 that its craft beers will be available in Philadelphia, Scranton and the Lehigh Valley in Pennsylvania.
Losses Getting Smaller While Sales Grow
Tilray posted an adjusted loss of 1 cent per share in its fiscal Q4 earnings release July 26, which equaled last year’s same quarter. This beat FactSet’s forecast of a four-cent loss.
Quarterly sales rose 20%, a huge improvement over the 4%, 7% and 9% declines in the prior three quarters. Revenue got a boost from the company’s strong 43% alcohol beverage net revenue increase, while cannabis net revenue grew 21% vs. the prior year’s same quarter.
The company has saved $22 million out of its $30 million cost optimization plan that it announced in Q4 2022.
Tilray’s $43 million adjusted free cash flow far exceeded the negative $24 million in the prior year’s quarter.
“During the 2023 fiscal year, we delivered on our commitment to generate positive adjusted free cash flow across all business segments, and executed against our strategic plan to grow revenue, drive operating efficiencies, and improve margins and profitability, all while investing in our industry-leading brands,” said Irwin D. Simon, Tilray Brands’ chairman and CEO.
Tilray expects to achieve full-year fiscal 2024 adjusted EBITDA targets of $68 million to $78 million, representing growth of 11% to 27% as compared with fiscal year 2023, with positive adjusted free cash flow in 2024.
Tilray held on to its top spot in the Canadian cannabis market with an 8.5% market share in a recent report.
Some States Climb On Board, Others Slow To Warm Up
Connecticut adult-use marijuana shops opened their doors for the first time on Jan. 10 for recreational and medical use. The shops are open to adults age 21 and over.
Hundreds waited in line as New York opened its first recreational dispensary on Dec. 30
Kentucky State Senate President Robert Stivers hinted that he may approve limited use of medical marijuana for patients at the end of their lives, but he remains skeptical of its effectiveness.
Missouri passed a law to legalize recreational-use cannabis, after it passed on the Nov. 8 ballot. Marijuana companies will be able to deduct business expenses on their Missouri state tax returns for the first time, benefiting startup cannabis companies.
Virginia also legalized pot but is not expected to have dispensaries until 2024.
Tilray’s chief strategy officer and head of international business, Denise Faltischek, sees favorable cannabis regulation in Europe ahead, but not until 2024.
Tilray Adds Partnership, Products
With the company not expecting U.S. legalization of cannabis on a federal level anytime soon, it is bolstering its alcoholic beverage presence and new products for additional growth.
Its strategy is to leverage its brands, infrastructure, expertise and capabilities to drive market share. Tilray’s growth plan focuses on new products and new geographies.
Tilray subsidiary SweetWater Brewing scored a big win with its partnership with ATLive concert series and Mercedes-Benz Stadium. SweetWater Brewing launched its gummies craft ale, containing 9.5% alcohol, on July 6.
Meanwhile, Tilray’s RIFF cannabis brand launched two new THC summer beverages in Canada on July 12. Lastly, its Breckenridge Distillery partnered with local Colorado artist Sandra Fettingis on a limited-release 96 proof whiskey.
TLRY Stock Fundamental Analysis
Earnings growth is a staple of top stocks. But the EPS Rating of TLRY stock stands at a weak 37 out of 99. Other Canadian marijuana stocks also have mediocre or weak profit ratings, as they continue to lose money.
The company’s SMR Rating — which measures sales, profit margins and return on equity — is a suboptimal D.
Is TLRY Stock A Buy?
Shares of TLRY are not in a base or in buy range, so TLRY stock is not a buy right now.
In addition, look for Tilray’s fundamentals to continue to improve, including a return to profitability.
IBD advises investors to focus on stocks with stronger fundamentals that are moving into buy zones. TLRY is trading around 2 a share. Institutional investors also typically avoid low-priced stocks.
Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.
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