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The Only 3 Numbers in Tilray's Q2 Earnings That Really Matter

By Keith Speights - Aug 29, 2018 at 6:01AM

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Hint: They won't be found on the marijuana grower's top and bottom lines.

Tilray (TLRY) is one hot stock. Shares of the Canadian marijuana grower have skyrocketed 137% since Tilray's initial public offering (IPO) on the Nasdaq stock exchange in July. Tilray stock has more than doubled in just the last two weeks.

The company announced its second-quarter earnings results after the market closed on Tuesday, Tilray's first such report since it began trading on the Nasdaq. Were there any surprises that could slow the stock's momentum down? Nope. Actually, there were only three numbers in Tilray's second-quarter update that really matter to investors.  

Marijuana plants on top of increasingly higher stacks of coins

Image source: Getty Images.

1. Cash position

Perhaps the most important financial metric in Tilray's second-quarter update was its cash position. The company reported cash and cash equivalents totaling $25.3 million as of June 30, 2018. But there's more to the story.

Tilray raised $163.6 million in net proceeds in its IPO. The company continues to lose money. However, Tilray's cash position at the end of the second quarter added to the funds it raised with its IPO is enough to fund operations for a long time to come.  

The company also has plenty of cash to invest for its future. Tilray's top priority is to expand its production capacity, particularly at its High Park facility in Ontario. It also plans to allocate some money to repaying debt. In addition, Tilray could make acquisitions down the road.

2. Recreational cannabis supply agreements

I view another number in Tilray's second-quarter update as more critical than its financial results. The company has signed supply agreements for recreational cannabis with seven Canadian provinces and territories: British Columbia, Manitoba, Nova Scotia, Ontario, Quebec, the Yukon Territory, and the Northwest Territories.

Tilray is definitely among the leaders of Canadian cannabis producers in lining up supply agreements with provinces and territories. This advantage shouldn't be minimized. The Canadian recreational marijuana market is projected to generate between 1.5 billion and 4.3 billion in Canadian dollars (roughly US$1.1 billion to US$3.3 billion as of Aug. 28, 2018) in 2019. 

The biggest opportunity lies in Ontario. Tilray was selected by the province as one of 26 producers to provide cannabis to the Ontario Cannabis Store, the only online retailer that will operate when the recreational cannabis market opens in October. Brendan Kennedy, Tilray's CEO, said during the company's Q2 conference call that Tilray is talking with potential partners about targeting the retail market when Ontario allows retail stores. 

3. Countries to which Tilray is exporting

Tilray's management stated in the Q2 conference call that only around 5% of revenue in the quarter came from international sales. That low percentage doesn't reflect just how important the global market is to Tilray over the long run, though. That's why I think a key number from Tilray's second-quarter update was that it is now exporting medical cannabis to 11 countries.

There are two countries in that group that are most meaningful to Tilray's prospects: Germany and the United Kingdom. Germany legalized medical marijuana last year. Sales have ramped up slowly so far. However, Arcview Market Research and BDS Analytics project that German cannabis sales will be around $1.6 billion by 2022, making the country the top international cannabis market outside of North America.

The U.K. is just getting started in allowing medical use of cannabis. Total revenue from the cannabis industry is projected to be tiny this year, only around $7 million. But by 2022, Arcview and BDS Analytics think marijuana sales in the U.K. could be in the ballpark of $288 million.

The results that didn't matter so much

What about the rest of Tilray's Q2 results? The company reported revenue of $9.7 million, a 95% year-over-year jump. Tilray also announced a net loss in the second quarter of $12.8 million, compared to a net loss of $2.4 million in the prior-year period.

I don't think these figures matter very much, though. Tilray doesn't have a market cap of close to $4.8 billion (and climbing) based on its medical cannabis sales in Canada. No one really cares that it's losing money right now. What's important are the company's prospects in the Canadian recreational marijuana market and the global medical marijuana market.

There's also one other important thing for Tilray -- the potential for a deal with a major alcoholic beverage company. Tilray's management wouldn't comment on whether or not the company is in discussions with Diageo, which is reportedly wanting to find a cannabis partner. However, I view Tilray as one of the top prospects for Diageo.

I also agree with Brendan Kennedy that other big companies are likely to make deals in the next few months. If Tilray is selected by a major beverage company (or perhaps a big tobacco company), this stock could get even hotter than it is right now.

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