Tilray Brands (NASDAQ: TLRY) shares still aren’t delivering on what investors may have hoped for, falling by 25% during the past 12 months. But, with a few catalysts in play, and with more operational improvements, anything is possible, and hope springs eternal.
So, is this stock worth investing in today, or is it better to save your capital for another opportunity?
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Tilray isn’t the same company it was a couple of years ago, when its primary focus was on developing itself into a multinational vertically integrated cannabis operator. Since then, it’s made a handful of major acquisitions in the alcohol industry in North America, and its collection of consumer brands is now also diversified into wellness products, some of which are derived from hemp.
In short, its marijuana segment could soon play second fiddle to booze. In its fiscal first quarter of this year, ended Aug. 31, 28% of its total revenue, or $55.9 million, was from alcohol sales, whereas 31%, or $61.2 million, was from cannabis. A year ago, 13% of its sales were from alcohol, and 40% from cannabis. Its other two segments, distribution services and wellness products, haven’t changed nearly as much.
Plus, as a consequence of slower and more limited than anticipated marijuana legalization policies in the U.S. and its international markets, particularly in the European Union, the company still derives the overwhelming majority of its cannabis revenue from the adult-use market in Canada, and its international sales actually dropped slightly year over year in the first quarter. Canada is Tilray’s home market, but it’s also a saturated market where it does not necessarily have any competitive advantage to protect its market share. And that’s part of the reason its trailing-12-month operating losses were $108.3 million.
This state of affairs has eroded the main investment thesis for buying the stock during the past few years. The idea was that via a combination of growth from its expansion into international cannabis markets and reliable income from alcohol sales, it would be able to get established as a highly efficient and mass-scale consumer goods business, complete with low-cost production facilities in major markets and widely known brands that would generate customer loyalty.
The plan appears to be stalled; its trailing-12-month revenue rose only by 38% during the past three years, reaching about $812 million. And while its operating margin has improved significantly, it’s still losing cash every year, with an outflow of $60.1 million in its fiscal 2024.
