The cannabis industry hit a series of important milestones recently, but none bigger than Canada's becoming the first Western developed nation to legalize recreational uses of pot. The highly anticipated event had marijuana companies giddy with excitement, while investors drooled over the enticing prospects the Canadian market offered. But one year after the fact, optimism has largely subsided, as cannabis companies have not performed nearly as well as expected.

A series of issues, including a slow rollout of physical stores and a longer-than-expected process for licenses approval, have stymied the progress of even the top players in the industry. Interestingly enough, at least one cannabis company foresaw severe issues in the Canadian market and decided to focus its energy elsewhere. That company is Tilray (TLRY).

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Why Tilray chose to focus on international markets

Back in April, Tilray's CEO, Brendan Kennedy, raised some eyebrows with remarks he made during the company's fourth-quarter 2018 earnings conference call. In his own words:

Over the next 18 months, we believe there will be oversupply [in the Canadian market], just as we have seen in certain U.S. states as operators in new legal markets race and government regulators catch up to find an equilibrium between supply and demand. To capitalize on global growth opportunities on both medical and adult-use cannabis, Tilray will deploy capital in most promising markets, where we see the greatest potential to pursue multiple paths to grow. The United States and European markets are orders of magnitude larger than Canada. So, while Canada will continue to be an important market for us, we expect to focus the majority of future investments on the U.S. and Europe. 

In a way, these remarks were spot on: International markets are far more lucrative than the Canadian one. After all, the state of California alone -- which has a larger population than all of Canada -- is arguably as big an opportunity as our neighbors to the north.

But given that Canada was the first Western nation to legalize recreational marijuana, perhaps a better strategy would have been to focus on the Canadian market first while also deploying some assets overseas, instead of the other way around. Considering how things have unraveled in the Canadian market in recent months, though, Tilray's strategy makes more sense in hindsight. 

Tilray's international expansion efforts

Tilray's footprints beyond the Canadian borders include assets in various segments of the cannabis market and in dozens of countries around the globe. But the company's ventures into the U.S. and Portugal are especially noteworthy.

Back in April, the pot grower acquired the world's largest hemp food company, Manitoba Harvest, for CA$419 million (about $317 million). Tilray funded this acquisition with a mix of cash and stock. With this deal Tilray made a push into the U.S. hemp market (Manitoba's hemp-based products are sold in 16,000 stores in North America, the overwhelming majority of which are in the U.S.), which presents an important opportunity given that hemp became legal at the federal level in December of last year. According to some estimates, the U.S. hemp industry will mature into a $1.3 billion market, while others claim that sales of hemp-derived CBD products could reach $20 billion by 2024. Tilray is arguably in a better position that most of its Canadian peers to profit from this lucrative opportunity. 

In Europe, Tilray plans to quarterback much of its operations through a 250,000-square-foot facility (with significant room for expansion) it owns in Portugal that includes research, cultivation, processing, packaging, and distribution capabilities. In March, the company completed the first harvest of medical cannabis in that facility, and more importantly, Tilray recently signed a partnership with privately held German medical cannabis importer, Cannamedical Pharma.

The deal -- which is for about $3.3 million worth of products -- will give Tilray access to the German market, which has been touted as one of the largest cannabis markets outside North America. The company hopes that cannabis laws will become less restrictive throughout Europe, which will allow it to expand similarly into more markets. 

Tilray's strategy isn't bearing fruit yet

Tilray has had its shares of problems as well. Sure, the company's top line keeps on growing; during its latest reported quarter, Q2 2019, Tilray's revenues rose by 99% sequentially and by 371% year over year to a total of about $45 million, beating analyst estimates in the process. However, Tilray's net losses have generally widened. Its adjusted net loss of $31.9 million for the second quarter was significantly worse than the loss of $12.8 million it recorded during the prior year's period.

Tilray's shares have declined by about 70% since the beginning of the year. That's similar to declines seen from other players in the cannabis industry, showing that at least for now, Tilray's international strategy hasn't yet been vindicated.