Tilray (NASDAQ:TLRY) has a $9 billion market value now that its merger with Aphria closed earlier in May. Aphria had just closed on its acquisition of Atlanta-based Sweetwater Brewing Company when it agreed in December to be taken over by Tilray. TLRY stock will likely move higher as its efforts to keep growing take hold now that it has closed its merger.
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The combined company now says that it will have a larger 17% market share of the Canadian cannabis market. This is based on a recent presentation that the company gave to investors. Tilray also says that it has identified 81 million CAD in operational pre-tax efficiencies through synergies between the two companies.
Savings and Upgrades
In fact, it now says that these savings will occur over 18 months. This is an improvement from the original 24 month period that they estimated would occur. For example, Tilray closed its High Park Farms facility in Ontario as part of operations consolidation. That was announced a year ago.
Recently Cantor Fitzgerald upgraded TLRY stock to overweight from neutral, according to Seeking Alpha. In addition, two other firms have upgraded their recommendations on Tilray. For example, according to Yahoo! Finance, Canaccord Genuity initiated its coverage on Tilray with a Buy on May 6. In addition, Jefferies upgraded TLRY stock from Underperform to Buy on May 7.
But not everyone is a believer. The Financial Times ran a very interesting article on May 11. The title of the article says it succinctly: “Canada’s cannabis ‘green rush’ yet to reap rewards.”
One of the key points the article brings up about the Canadian cannabis market is that there is no brand loyalty. This is one of the main reasons why the market participants there are merging. The article says that over 1,000 tons of marijuana sit in warehouses unsold. Up until recently, there weren’t many cannabis stores licensed to sell products and the illicit market dominated sales.
Moreover, the article says that the whole Canadian market produces just 2.6 billion CAD in sales. That works out to $2.147 billion in US dollars. Compare this to the $9 billion market value for TLRY stock. You get the picture.
On the other hand, the FT article indicates that things seem to be turning around. 50 stores a month are now being approved and analysts say the long-term future is that the market will rise to between 8 billion CAD to 10 billion CAD.
What To Do With TLRY Stock
This is a very volatile sector to invest in for most investors. For example, TLRY stock peaked at $63.91 on Feb. 10 and is now at $20.22 as of June 8. That means it has fallen 68.4%. However, it is still up from $8.26 where it ended last year. That is a gain of 145% year-to-date.
After President Joe Biden was elected, all the cannabis stocks took off. Investors thought that the Democrats would immediately legalize marijuana. That hasn’t happened.
The point is that investors should be careful with TLRY stock. I have not yet been able to figure out how to value it. I don’t like to invest in companies where I cannot come up with a working model, however simple.
But like I mentioned above, some analysts in the sector have seen their way to recommend the stock. And maybe that is just the way it should be.
As the Canadian cannabis market grows, which it inevitably will, Tilray will benefit as well. And that will almost certainly mean that TLRY stock will move higher as well. It’s just that I cannot value the company based on its fundamentals.
So, if you are inclined to invest in TLRY stock based on Street analysts’ recommendations, just be careful to remember that the stock can be very volatile. You have to be able to live with the vagaries of speculative investment.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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