It’s Time to Scale into Tilray Stock

Medical and consumer cannabis producer Tilray NASDAQ: TLRY stock has been an absolute rollercoaster in 2021 triggering a GameStop (NYSEL GME) like short squeeze rocketing shares up to $67 highs on Feb. 10, 2021, before plummeting down to $18.23 lows on Mar. 5, 2021. The state-by-state legalization of cannabis continues to gain momentum as states weigh the potential tax revenue windfalls. Democratic Senators are pressing for an end to the federal prohibition of marijuana in 2021. Cannabis stocks are similar to digital sportsbook and iGaming stocks in that their main catalysts are driven by state-by-state legalization. The regulatory tailwinds favor more legalization for marijuana providing a rising runway for shares of Tilray and its peers, especially after the merger with Aphria NYSE: APHA. Prudent investors seeking exposure in an inevitable trend can monitor shares of Tilray for opportunistic pullbacks to consider scaling into positions. 

Q4 FY 2020 Earnings Release

On Feb. 17, 2021, Tilray reported an adjusted earnings-per-share (EPS) loss of (-$0.02), beating consensus analyst estimates for EPS loss of (-$0.13), by $0.11. Revenues rose 20.5% year-over-year (YOY) to $56.56 million, beating estimates for $54.82 million. Cannabis segment revenues increased 46% YoY driven by internal medical sales  and Canadian Adult-Use sales. Hemp segment revenues fell (-19%) due to shift to private label product with a large customer and the effects of COVID-19. Full-year 2020 revenues grew 26% to $210.5 million YoY. The combined merger with Aphria is expected to close in Q2 2021 to create the world’s largest cannabis company by pro forma revenue. The Company reduced costs by $57 million on an annualized basis in 2020. The Company ended 2020 with $189.7 million. As of Feb. 16, 2021, Tilray had $261.3 million in cash.

Conference Call Takeaways

Tilray CEO, Brendan Kennedy, underscored, “We are the first GMP certified medical cannabis producer in North America, one of the first producers to be licensed by Health Canada for medical and adult-use production and distribution.” Regarding the Aphria merger, “The combined company will have a portfolio of carefully curated and complementary brands in every major cannabis category, including flower, pre-roll, oils, capsules, vape edibles, and beverages, and across all consumer segments, economies, value, core, mainstream, and premium. We will also have a leading Canada Adult Use retail market share of approximately 17%, which is roughly 700 basis points higher than the next closest competitor.” The combined companies will generate CAD$100 million pretax synergies. The European EU GMP production facility and Freest German Medical distribution footprint will reach over 13,000 pharmacies. The merged company will leverage their two leading consumer brands SweetWater’s hard seltzers, craft beers and beverages with Manitoba Harvest’s hemp and wellness products in the CBD and THC spaces as regulation permits.

U.S. Legislation  

The U.S. currently has 16 states that have legalized both leisure and medical use of cannabis with 26 states permitting medical use and two states decriminalizing marijuana. However, many of these approved states are still awaiting final legislation and regulations which may be a year or more away. Nonetheless, shares of Tilray are very reactive each step of the way as evidenced by the price spikes on the potential decriminalization in Alaska and a review for legalization in New York in March 2021. Internationally, Tilray medical cannabis products are now available to patients in 17 countries.

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 TLRY Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a more precision near-term perspective of the landscape for TLRY stock. The weekly rifle chart is trying to maintain its uptrend as the 5-period moving average (MA) support at $26.35 tries to deflect pullbacks. The weekly stochastic peaked and reversed back down sharply due to the parabolic short-squeeze to and the collapse off the $67.17  Fibonacci (fib) level. While the pullbacks formed a weekly market structure low (MSL) buy trigger above $29.44, it also formed a daily market structure high (MSH) sell trigger at the $31.22 breakdown. It’s worth noting how powerful that $29.44 resistance was as it deflected break attempts twice in March. The daily rifle chart is attempting to breakout as the daily 5-period MA at $25.34 crosses up through the 15-period MA at $25.04 targeting the $34.40 upper daily Bollinger Bands (BBs) pending a successful breakout through the daily MSL and weekly MSH triggers. Risk-tolerant investors and nimble traders can monitor for opportunistic pullback price levels at the $25.46 fib, $24.51 sticky 5s zone, $23.42 fib, $22.61 fib, $21.41 fib, $20.10 fib, and $18.57 fib. The higher priced fibs are strong reversion levels for traders while investors can look to scale into a position with a pyramid style dollar-cost averaging strategy. Keep an eye on peers Canopy Growth NASDAQ: CGC and Grow Generation NASDAQ: GRWG as they tend to move as a group. Upside trajectories range from the $34.40 daily upper BBs up towards the $60.85 fib.