Tilray Stock Forecast

Tilray Stock Forecast: Canada’s legalization of medical and recreational cannabis in October 2018 made the country the second in the world after Uruguay to legalize the possession and use of marijuana.

This new legal landscape represents a serious opportunity for investors who want to bet big on the future of Canadian cannabis. So far, there are eight Canadian marijuana companies trading on U.S. stock exchanges. One of these companies is Tilray [NASDAQ: TLRY], which has become a trailblazer in the legal cannabis industry.

In 2016, Tilray was the first North American producer of medical cannabis to receive a GMP (good manufacturing practice) certification. 2018 saw Tilray breaking two more records: the first cannabis company to launch an IPO on the NASDAQ stock exchange, and the first Canadian cannabis company to supply a clinical trial in the U.S.

After spiking above $200 in September 2018, shares of Tilray have since come down to earth, and have continued to lose value since the start of the year. Will this downward trend continue, or is there good news for Tilray stock on the horizon?

What Does Tilray Do?

Tilray [NASDAQ: TLRY] is a Canadian pharmaceutical and cannabis company that became the first cannabis company to be listed on a major U.S. stock exchange in 2018. The company is involved in all aspects of the cannabis supply chain, from research and growing to production and distribution.

Founded in 2013, the company operates its headquarters out of Toronto, as well as a 60,000-square-foot research and production facility in Nanaimo, British Columbia.

In addition to its business in North America, Tilray has also signed supply agreements with doctors, governments, pharmacies, and hospitals in 12 countries, including Portugal, Germany, Australia, and New Zealand.

Brendan Kennedy serves as Tilray’s CEO, and is also co-founder of Privateer Holdings, a private equity firm that owns 76 percent of Tilray. The company’s main competitors include other cannabis producers such as Aurora Cannabis, Canopy Growth, Supreme Cannabis, and Cronos Group.

Is Tilray Stock a Buy?

If you had asked the question “Should I buy Tilray stock?” a year ago, the answer would have been a resounding yes. 2018 saw Tilray enter into a number of advantageous deals and strategic partnerships that were a strong sign for the months ahead.

That year, Tilray [NASDAQ: TLRY] signed a global co-branding and distribution deal for medical cannabis with Sandoz, a division of Novartis that produces generic pharmaceuticals.

The Financial Post called “Big Pharma’s first foray into cannabis.” In 2018, Tilray also entered into a $100 million deal with Anheuser-Busch InBev to investigate the production of non-alcoholic cannabis-based beverages.

Good news has continued to roll in for Tilray into 2019:

  • In January, the company signed another $100 million deal with Authentic Brands Group to develop consumer products infused with cannabis, such as cosmetics and foot creams.
  • In February, Tilray acquired Manitoba Harvest, the world’s largest hemp foods company, for $317 million, with the aim of producing hemp and CBD-infused food and wellness products.
  • In July, the company announced another acquisition: Smith & Sinclair, the British producer of “alcoholic gummies.” Tilray plans to use the purchase to produce a line of CBD-infused edible products.

What are the Risks of Buying Tilray?

Despite these big moves, however, many investors are less than bullish about the future of Tilray stock. Shares of the company have declined steadily since reaching their frenzied peak in September 2018; the stock now trades roughly at its IPO price.

Many analysts have written about the “pot bubble,” a rush of interest in cannabis stocks from investors similar to the dot-com bubble in tech stocks at the turn of the millennium. Not only Tilray [NASDAQ: TLRY], but also its competitors Canopy Growth, Aurora Cannabis, and Cronos Group have had an underwhelming 2019 thus far.

Unfortunately, among these companies Tilray is especially notable (or infamous) for its shaky financial standing.

In Q2 2019, Tilray reported a gross margin of 27 percent, which is fairly poor (although an improvement from the gross margins from previous quarters).

What’s more, improving this figure will be difficult for the company given its recent purchase of Manitoba Harvest: hemp-based food products typically have lower margins than sales of cannabis.

There are two more statistics that should make would-be Tilray investors nervous: the company’s dwindling cash flow and its profitability.

At the end of 2018, Tilray had $518 million cash on hand, but this number has now drastically shrunk to $221 million.

While Tilray’s acquisitions and expansions can explain some of the decline, the company is also taking on a lot of liabilities.

Second, Tilray reported a Q2 2019 net loss of $35 million, which means that it’s far from being profitable yet.

Tilray Stock Forecast Summary

Your opinion on whether to buy Tilray stock will likely depend on your thoughts about the Canadian cannabis market as a whole.

While it’s far from the worst place for investors to put their money, Tilray [NASDAQ: TLRY] is overshadowed by many of its competitors, who face the same “pot bubble” risks but who are currently on steadier ground.

If you’re interested in investing in cannabis stocks, alternatives to Tilray such as Aurora Cannabis and Cronos Group may be worth a closer look.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.