Concern about Canadian cannabis Tilray (TLRY) got a big boost from earnings last week. The company reported an 8% increase in sales in the fiscal fourth quarter of 2022 and a 22% increase in sales for the full year.
Tilray was not profitable, of course. Indeed, the company reported a net loss of $458 million in the fourth quarter and $434 million for the full year. But investors forgave that oversight, relying on management’s promise to generate between $70 million and $80 million in “adjusted EBITDA” in fiscal 2023 and turn “free cash flow positive in its operating business units.”
This week, Jefferies analyst Owen Bennett joined the general upbeat sentiment on Tilray’s news, commenting that he saw “signs of Canadian improvement” in Tilray’s results and was “impressed” with the performance of its beverage and cannabis distribution businesses company — while also expressing some hope that Tilray will be able to leverage its “best in business” position in international markets.
In Canada, adult cannabis sales (ie, recreational cannabis sales) appear to have fallen 27% sequentially in the second quarter and 13% in the third quarter — but rose 4% in the fourth quarter, Tilray said.
Outside of Canada — but within the US — Tilray’s beverage sales grew 16% sequentially, with sales expanding into new states and strong margins of nearly 60% on those sales. Hemp sales grew 10% sequentially, and Bennett sees Tilray further expanding its business into CBD sales — a potential $1 billion market, according to the analyst.
Further abroad, the picture is not so pretty, with “international” sales down 11% sequentially, “largely due to limited shipments to Israel.” But Bennett believes Tilray’s 20 percent market share in Germany, for example, where recreational marijuana sales will become legal in 2024, holds promise. Bennett says he places “substantial” value on this future business.
Speaking of dollars (and cents), Bennett notes that Tilray has already cut $100 million from its cost structure, which helped gross margins improve 131 basis points sequentially in the fourth quarter. Additionally, he expects to see nearly $100 million more ($98 million to be exact) in “consulting fees and joint synergies” saved from Tilray’s purchase of Hexo over the next four years.
Based on those assumptions and last week’s results, Bennett says he expects Tilray to do $670 million in sales this year, with “adjusted” gross margins of 35.1 percent and EBITDA of $69 million.
It’s worth noting that both this EBITDA number and the revenue number are lower than what Bennett previously predicted for Tilray. It’s also worth noting that the $69 million in EBITDA is actually below the full range of Tilray’s guidance for next year. Still, Bennett maintains his buy rating on Tilray stock and believes management will be true to its word on free cash flow at least generating positive FCF in 2023. (To track Bennett’s track record, Click here)
Most on the street aren’t bullish on Bennett on Tilray, with TipRanks analytics listing the stock as a Hold. Based on 9 analysts polled in the last 3 months, 3 rate TLRY a Buy, 5 issue a Hold, while only one recommends a Sell.
But TipRanks might as well have said “buy” — because analysts, on average, think the stock, currently at $3.90, could rise to $5.49 within a year, turning a profit ~41% to new investors. (See TLRY Stock Prediction on TipRanks)
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