Will Tilray's Earnings Help the Marijuana Stock Catch Up?

A lot has happened in the marijuana industry lately, and the attention that investors have paid to cannabis stocks so far in 2019 has been stunning. Yet even though it's managed to move up this year, Tilray's (TLRY +0.00%) 11% share-price gain is well behind most of the other major cannabis companies in its peer group, and that has some investors wondering about whether the future is as bright for Tilray as it is for other stocks.

Tilray is expected to release its fourth-quarter financial report within the next week, and shareholders are hoping for more clarity on the company's strategic vision and the next potential catalyst for explosive gains for its stock. Although the numbers that most investors expect Tilray to report might not point to the same level of growth that we've seen from other cannabis companies, the commentary that CEO Brendan Kennedy gives could be pivotal in defining investor sentiment in the stock.

Stats on Tilray

Data sources: Yahoo! Finance and S&P Global Market Intelligence. "Last quarter" refers to third quarter of 2018.

Concerns about Tilray

Investors who follow Tilray have gotten a bit more concerned about the company's bottom line in recent months. Loss estimates for both the fourth quarter of 2018 and the full 2019 year have widened considerably, pushing out expected profitability until 2020 at the earliest. The stock has struggled over the past three months, like many marijuana stocks, and Tilray's share price is down almost 30% since mid-November.

Tilray's third-quarter financial report showed both the opportunities and the challenges that the cannabis company faces. Revenue was higher by 86% year over year during the period, and even though extensive losses continued to plague the company, Tilray did post adjusted loss-per-share numbers that were less negative than most had anticipated. Tilray's production volumes showed impressive gains, providing the supply needed to meet rising demand from events like Canada's legalization of recreational marijuana. Yet a change in the sales mix caused Tilray's average prices to fall, cutting into overall revenue growth.

Image source: Tilray.

Is Tilray different from other cannabis stocks?

Some of the issues that Tilray is facing are common across the marijuana industry. Most of Tilray's peers have also seen their projections for earnings come down recently, as investors recognize the difficulties involved in the highly competitive pot sector. Companies are working hard to boost their growing capacity, but the capital investments involved are having an immediate impact on their bottom line without necessarily having any significant short-term positive boost to production. At the same time, even with legalization initiatives gaining steam, the regulatory frameworks involved in complying with rules governing the production and sale of cannabis products are complicated and have high costs of their own.

Yet Tilray has its own unique obstacles as well. Unlike some other key cannabis stocks, the partnership that Tilray carved out with beer giant Anheuser-Busch InBev (BUD 0.55%) didn't involve a major investment in the company or a large amount of up-front cash. Although potential research into cannabis-derived beverages could become an explosive growth opportunity for both companies, A-B InBev doesn't seem to have the same level of confidence that its consumer-product peers have had in forging much deeper collaborations with marijuana-producing partners.

Check out the latest Tilray earnings call transcript.

Some also fear that Tilray shares remain overpriced even after their relative underperformance. Other cannabis companies have found ways to become profitable on an operating basis, but even with Tilray's international scope and emphasis on lucrative medical cannabis, it's likely to lag behind its competitors. Also, some investors remain fearful about the 75% drop in Tilray's shares from their peak -- even though the stock still trades at well over double where it traded shortly after its IPO last summer.

Be ready for Tilray

Tilray investors should keep an eye on two key figures in its earnings report: how much it's able to boost production capacity and how its expenses translate into further losses on the bottom line. If Tilray's able to make incremental progress toward profitability and more substantial revenue growth, then it could send the company's shares upward in a way that's more in line with what other cannabis stocks have seen so far in 2019.