It says something about the sorry state of publicly traded Canadian cannabis companies that despite Tilray’s (TLRY) recent tepid FQ1 results, when measured against its underperforming peers, Jefferies’ Owen Bennett finds some comfort in the display.
According to Bennett’s estimates, pro-forma adult-use sequential sales declined from roughly $55 million to $52.6 million, cannabis adj. GM fell QoQ from 44.5% to 43%, and adj. EBITDA margin also exhibited a drop - from 8.7% to 7.6%.
Not a good look. However, Bennett says these figures “need to be put into context.”
“On the top line,” says the analyst, “Sequential delivery was much better than in some recent peer reporting, while Tilray remains the clear leader in terms of market share.”
While on the bottom-line, Tilray is the only major cannabis player that is EBITDA positive - and for the 10th quarter in a row, to boot. “Against this backdrop,” Bennett adds, “The quarterly delivery was more than respectable.”
Tilray’s position as the “most attractive Canadian operator by some distance,” is further cemented by the inroads it has been making into the far more lucrative US market, a pre-requisite for “any near-term material re-rating for all Canadian names.”
The company currently boasts “US optionality” in non-THC via Sweetwater (craft beer/seltzers) and Manitoba Harvest (hemp food/CBD). Tilray also made a first foray into US THC during the quarter when it obtained “optionality” on MedMen converts and laid out a route to eventually gaining control of the company.
While Bennett expects similar deals in the future, the analyst admits to being disappointed when management said on the earnings call it is likely in the near-term to pursue other deals which aren’t exclusively THC but a “mix of THC and non-THC assets.” The company is particularly attracted to the personal care segment.
“While we fully understand the logic behind this, as such assets can be leveraged for full federal legalization down the line (mass-market brand awareness, distribution etc.), we would prefer moves for THC,” the analyst opined. “We think there is more value to be created down this route, especially given where current multiples are — the risk being if deals are done post capital market protections, which we expect to come before the mid-terms, they will likely be much more expensive.”
All in all, Bennett sticks to a Buy rating, although the analyst has cut the price target from $27 to $22. No need to get too despondent, the figure still represents potential upside of 90% from current levels. (To watch Bennett’s track record, click here)
The Street’s average target might not be quite as lofty, yet at $14.73, could still generate returns of 27% over the 12-month timeframe. Rating wise, the analysts are more ambivalent; based on 3 Buys vs. 10 Holds, the stock has a Hold consensus rating. (See Tilray stock analysis on TipRanks)
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