Tilray (NASDAQ:TLRY) reported Q2-2022 earnings Monday and its stock rallied over 20% during early morning trading. Investors have been watching the cannabis LPs financial performance, after the Aphria merger, and it seems that there are some positive developments to report. Although the company did not beat on revenue, it did report a net income of $6 million and adjusted EBITDA of $13.8 million.
While remaining one of the top LPs in the Canadian cannabis market, the company has great potential in the German medical markets and in its strategy for US legalization. The company’s stock has experienced severe downtrend over the last 8 months and is currently trading near its 52-week low. With financial performance improving and the company’s strategic position in the global cannabis market, I believe that a higher valuation will be achieved. I rate Tilray as a buy and recommend a long-hold position. If the stock hits a $10 price target over 2022, then one may realize a 45% profit potential.
Tilray Reports Improved Q2-2022 Financial Results
In Millions of USD |
Q2-2022* |
Q1-2022** |
Q4-2021 |
Q3-2021 |
Q2-2021 |
Total Revenues |
155.1 |
168 |
132.4 |
120.7 |
123.6 |
Cost Of Revenues |
122.3 |
117.1 |
131.3 |
95 |
93.2 |
Gross Profit |
32.7 |
51 |
1.1 |
25.7 |
30.4 |
Total Operating Expenses |
87.4 |
93.9 |
26.5 |
69.1 |
46.3 |
Operating Income |
(54.6) |
(43.0) |
(25.4) |
(43.4) |
(15.9) |
Net Income |
5.79 |
(41.6) |
35.4 |
(283.6) |
(92.9) |
Total Cash & ST Investments |
331.7 |
376.3 |
488.5 |
209.9 |
144.8 |
Total Receivables |
84.5 |
99.5 |
99.1 |
72 |
83.5 |
Total Current Assets |
708.2 |
844.6 |
883.6 |
574.1 |
532.9 |
Total Assets |
5,763.4 |
5,986.4 |
6,025.4 |
2,204.0 |
2,164.2 |
Total Current Liabilities |
314.9 |
526.8 |
401.2 |
170.5 |
225.6 |
Total Liabilities |
1,290.4 |
1,600.6 |
1,560.0 |
973.4 |
665.1 |
Total Enterprise Value (MM) *** |
3,610.54 |
3,900.03 |
6,606.27 |
8,024.53 |
8,024.53 |
Market Cap (MM) *** |
3,046.81 |
3,336.31 |
6,149.83 |
7,457.68 |
7,457.68 |
Price *** |
6.42 |
7.03 |
13.69 |
16.67 |
16.67 |
*Q2-2022 financial data from Tilray’s press release
**Other quarterly performance from Seeking Alpha
***Valuations from www.TIKR.com
Revenue has increase 20% from the same quarter prior year. Revenue is down $13 million from last quarter, but $155 million still represents a historically high revenue report for the company. Gross profit has decreased 7% since same quarter prior year. Revenue numbers break down into the following segments and markets.
In Millions of USD |
Q2-2022 |
Q2-2021 |
Cannabis Revenue |
58.775 |
54.766 |
Distribution Revenue |
68.869 |
73.983 |
Beverage Alcohol Revenue |
13.707 |
710 |
Wellness Revenue |
13.802 |
0 |
Canadian Medical |
7.929 |
6.260 |
Canadian Adult Use |
49.535 |
58,175 |
Wholesale Cannabis |
2.259 |
1.440 |
International Cannabis |
13.706 |
4.280 |
Net Revenues |
155.153 |
129.459 |
As the Canadian market seems to peak, Tilray has other segments and markets growing. International markets, beverage alcohol, and wellness markets have shown a marked increase.
The company reports a net income of $5.79 million, a positive adjusted EBITDA of $13.8 million, and a positive EPS. Although assets outweigh liabilities, the company currently reports a negative adjusted free cash flow of $15.9 million. For better financial results, investors would want to see lower cost of revenues, lower operating expenses, and continued growth in new operating segments and markets.
Tilray Reports Current Strategic Positioning and Growth
SweetWater is a US based craft brewing company and a subsidiary of Tilray. The company added to Tilray’s revenue numbers and is part of Tilray’s plan for US federal legalization. SweetWater recently acquired award winning craft beer brands Alpine Beer and Green Flash Brewing. The company also introduced new products in the ready-to-drink Spirits category and underwent cross-brand collaboration with Tilray’s cannabis brand RIFF.
Tilray announced that it acquired Breckenridge Distillery, a craft whisky and spirits distillery in Colorado. The company has won awards for its sprits and whisky products and has a strong sales and distribution network. The company will be another strategic position for Tilray in anticipation of US federal legalization.
Tilray announced expansion of its European medical operations into Luxembourg. The Luxembourg Ministry of Health has selected Tilray to provide GMP certified medical cannabis for the country’s medical cannabis program. Tilray has GMP-certified cannabis grow facilities in Portugal and Germany. Tilray currently supplies GMP certified cannabis to the Germany government for its medical cannabis program. The company is positioned for recreational cannabis sales, when Germany passes legislation, which is currently in the works. Tilray estimates the European cannabis markets to be worth over $1 billion. Tilray supplies medical cannabis to other European countries, including Spain, Portugal, UK, and France.
Tilray announced expanded distribution agreement with Great North Distributors for adult use cannabis across Canada. Great North is a company set up by Canadian Southern Glacier Wine and Spirits and it aims to be Canada’s first national cannabis broker. Tilray enjoys a #1 market position in the Canadian cannabis markets and the distribution agreement will increase Tilray’s market presence.
Tilray has additional strategic plans for US federal legalization. The company has a right to acquire a majority interest in US cannabis MSO MedMen Enterprises (MMNFF: OTC) upon US federal legalization. Its ownership of Manito Harvest, a Canadian / US CBD manufacturer and retailer, also provides strategic positioning for legalization, since Manito enjoys a large US distribution footprint.
Tilray’s Stock Price Has Been On The Downtrend
The company’s stock price rallied last February to $65 per share, but has been on a severe downtrend since. The stock price currently trades about $1 above its 52-week low. It lost 36.56% over the last 12 months. News about the company’s Q2-2022 financial release caused the stock to rally 20% during Monday morning early trading, still up over 10% in afternoon trading. It is unclear if the stock price will begin a new uptrend, but it represents one of the largest rallies of recent for the stock price.
Risk and Investment Thesis
Tilray has improved its financial performance, but there are still risks to consider. The company reports negative cash flow and high operating costs. The risk is still low, since the company is positioned to overcome some of the obstacles, especially with its global strategy. The overall market has been bearish on cannabis on the grounds that the Canadian markets are over-saturated and that US federal legalization remains unclear. It is yet to be seen whether 2022 will produce a new bull rally for cannabis stocks, but January trading so far has seemed promising.
I rate Tilray as a buy and recommend a long-hold position and to buy the dips. The strategy sees growth over the next two years as Tilray brings its global strategy to fruition. Continued improvement in financial performance will bring higher valuations and the stock should see uptrend. The Wall Street price target on Tilray is $11.50 per share. If the stock price hits $10 per share, then it represents a 45% gain.
Conclusion
Tilray reports improved financials for Q2-2022. The company is seeing higher revenue overall and net income from operations. Tilray is well positioned in Europe for medical and recreational cannabis markets. The company is also positioned for US federal legalization. In Canada, Tilray has plans for expansion in the cannabis markets. The company’s stock price rallied 20% on the news of its financial performance. Whether the uptrend continues, is unclear. I rate the stock a as a buy and recommend a long-hold strategy.