Tilray Looks to Post Higher Revenue, When Will Investors See Profits?

Tilray (NASDAQ:TLRY) will post their latest earnings on March 2 after the market closes. Analysts expect the company to announce negative earnings per share of 38 cents. This will be lower than the negative 33 cents per share posted in the same period in 2018.

However, revenue looks to be a bright spot. Analysts expect Tilray to post revenue of $55.52 million. That would be significantly higher than the $15.53 million it posted in the same period in 2018.

The Canadian retail market is open for business

Some of the increased revenue is undoubtedly from the steady, but still slow, opening of the retail cannabis market in Canada. In 2019, all cannabis companies dealt with the frustratingly slow pace of retail store openings. However that pace is accelerating. And, in January 2020, the Canadian retail market topped $100 million in sales (in U.S. dollars) for the first time.

And the cannabis companies got this revenue mostly without the assistance of “Cannabis 2.0”. That is, the derivative market that includes items like vapes, edibles, and infused beverages. These will be an opportunity because consumption does not require smoking. And the younger generation of users is showing a greater willingness to buy these products that will have higher margins.

There is still a haze over the future of the cannabis sector

Some analysts are projecting the legal cannabis industry can grow between $50 billion and $75 billion in annual revenue in the next ten years. But these estimates are largely based on the opening of the U.S. market to both medical and recreational cannabis. That is a future that remains uncertain.

A lot of that uncertainty, however, has to do with the recreational use of marijuana. There is a level of discomfort at having marijuana as readily available as alcohol. For that reason, it may still be years before the United States removes cannabis from the list of banned substances.

With that said, there is little doubt that public sentiment about the medical benefits of cannabis, particularly as it relates to pain management, is changing. For example, in 2019, Tilray successfully imported medical cannabis into the United States in support of a clinical trial. This news flew mostly under the radar, but represented a huge win for Tilray.

The study is attempting to determine if medicinal cannabis can help relieve the taxane-induced peripheral neuropathy (TIPN) that affects over 67% of women who receive breast cancer treatment.

Tilray is hedging its bets

Diversification may be becoming the new watchword in cannabis. Due to the slow pace, and uncertainty surrounding, legalization in the United States, companies are realizing that they have to find multiple revenue streams. In the case of Tilray, the company recently made a deal to acquire Manitoba Harvest, the world’s largest hemp food company. And the company continues to push into the medical marijuana sector.

However, Tilray has always taken an unconventional approach to the cannabis market. The Canadian company has focused its efforts mostly outside of Canada. Specifically, Tilray is deploying capital in the United States and Europe. These markets, according to Tilray CEO Brendan Kennedy are “orders of magnitude” larger than Canada’s.

That was one reason behind the purchase of Manitoba Harvest. As the world’s largest hemp food company, the acquisition gives Tilray a strategic advantage in the U.S. hemp market.

Tilray is taking a different approach in Europe. The company reached an agreement with Cannamedical Pharma, a German medical cannabis importer that will give Tilray access to the German market. And, the company purchased a 250,000 square-foot facility in Portugal. The intention is to streamline its European operations.

Tilray does not grow cannabis

Deals like these are part of Tilray’s “asset light” model. In this way, the company is similar to the Cronos Group (NASDAQ:CRON) in that, Tilray is not a grower. The one thing investors know about the cannabis sector in 2019 is that it is oversupplied. Companies like Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), and OrganiGram (NASDAQ:OGI) are wrestling with the very real problem of having to write down supply that will never be used.

Tilray, on the other hand, is putting their efforts into product development and retailing. And, by focusing on the medical marijuana sector, they may have a (relatively) faster path to approval. As the use of marijuana in clinical trials shows, cannabis does have a path to legalization. The United States has an opioid epidemic. Lawmakers are cracking down on pharmaceutical manufacturers, but regulation seems hollow and insensitive without viable alternatives in place.

Owning Tilray stock is not for the week of heart. The stock is trading below its initial public offering (IPO) levels. And it may be years before the cannabis market produces gains that reward investor’s patience. Tilray has two things going for it, an aging population and a product that can deliver natural, holistic treatment for their aches and pains. For those reasons, Tilray stock may be worth the speculation.