What happened
Shares of Tilray (TLRY) are tanking today, down by 10.3% as of 10:40 a.m. EDT. The big drop reflects investors' disappointment with the Canadian cannabis producer's second-quarter results, which were announced on Tuesday after the market closed.
So what
Analysts expected Tilray to post a net loss of $0.25 per share. However, the company actually reported an adjusted net loss of $0.32 per share. Without the adjustments, Tilray's net loss was $35.1 million, or $0.36 per share, compared to a net loss of $12.8 million, or $0.17 per share, in the second quarter of 2018.
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When a stock drops because of quarterly results, the smart thing for investors to do is to examine whether the bad news could be only temporary or impact the company for a longer period. In Tilray's case, it seems likely that the company will keep losing money for a while to come.
The problem isn't revenue. Tilray's Q2 sales nearly doubled from the previous quarter and were 371% higher than the prior-year period. The company should pick up even more momentum in the future with growth in the Canadian adult-use recreational marijuana market, international medical cannabis markets, and the North American hemp CBD market.
But it doesn't seem that Tilray's spending will level off anytime soon. Management hinted in the Q2 conference call that it will continue to invest heavily in developing new markets. That will likely translate to sustained net losses for the foreseeable future. However, those investments could pay off in higher revenue and potentially in achieving profitability down the road.
Now what
There are several things to watch closely with Tilray over the next several months. One is the opening of more retail locations in key Canadian provinces, including Ontario. This should help boost Tilray's recreational marijuana sales. Another is the launch of the Canadian cannabis derivatives market in October. Tilray appears to be in a good position to perform well in this market.
Outside of Canada, investors will want to keep their eyes on the maturing of European medical cannabis markets, particularly in Germany. Also, any actions taken by the U.S. Food and Drug Administration (FDA) with respect to hemp CBD regulations could significantly impact Tilray now that it owns hemp food company Manitoba Harvest.
