It's been hit or miss so far with the major Canadian cannabis producers' recent quarterly updates. Tilray (TLRY) became the latest of the group to report, with the company announcing its 2019 fourth-quarter and full-year results after the market closed on Monday.
Tilray's shares dropped more than 11% in after-hours trading, providing a hint as to how the company performed in the fourth quarter. But it wasn't all bad news. Here are the three most important things to know about Tilray's Q4 update.
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1. It has a diversified revenue base
Tilray announced Q4 revenue of $23 million, up 202% year over year but down 8% from the company's third-quarter results. What was perhaps most striking about its revenue, though, was just how diversified it has become.
The company reported $18.7 million in hemp revenue in the fourth quarter, representing nearly 40% of total revenue. Tilray's hemp sales are generated by Manitoba Harvest, the hemp food company that Tilray acquired last year.
Canadian adult-use recreational marijuana sales totaled $17 million in Q4, jumping 265% year over year, and more than 7% quarter over quarter. Canadian medical cannabis revenue increased by 17% year over year to $3.3 million, although sales fell nearly 15% from the third quarter. International medical cannabis revenue soared 280% year over year to $4 million, but sank 36% below Tilray's Q3 total.
Tilray's worst news related to its top line was deteriorating bulk cannabis sales. The company stated that bulk cannabis revenue in Q4 totaled $3.9 million, down 44% year over year and plunging nearly 61% from Q3.
2. The bottom line is trending in the wrong direction
Although Tilray announced in early February that it was restructuring and laying off staff, those moves didn't happen soon enough to help the company in the fourth quarter. Tilray's bottom line continued to trend in the wrong direction.
The company reported a net loss of $219.1 million, or $2.14 per share, in Q4. This reflected significant deterioration from the net loss of $31 million, or $0.33 per share, in the prior-year period. It was also much worse than the net loss of $35.7 million, or $0.36 per share, posted in the third quarter of 2019.
While there were some accounting items that contributed to Tilray's dismal bottom-line performance in Q4, the reality is that the company continues to spend a lot more than it's taking in. Tilray's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) factors out some of the accounting items but still plunged to a loss of $89.8 million, versus a loss of $28.3 million in the same period of 2018.
3. There are signs of a deal not panning out as expected
In January 2019, Tilray announced a major collaboration with Authentic Brands Group (ABG) to much fanfare. The company forked over $100 million up front to secure a long-term agreement where it would be able to market and distribute consumer cannabis products in ABG's brand portfolio, which includes well-known brands such as Nine West, Prince, and Spyder.
There are now signs that the deal might not be panning out nearly as well as expected. Tilray recorded an impairment of more than $112 million in the fourth quarter related to its ABG agreement.
Tilray CEO Brendan Kennedy stated three months ago in the company's Q3 conference call that an initial product launch in the U.S. of hemp-infused Nine West products was expected "in the near future." He also said at the time that Tilray was working with ABG to launch other brands in European markets by early 2020. So far, though, the company hasn't announced either U.S. or European launches from its ABG partnership.
Looking ahead
Kennedy said that Tilray's sales growth momentum should continue this year. However, he acknowledged that Tilray -- like other Canadian marijuana stocks -- faces some challenges. But Kennedy thinks that Tilray's diversification positions the company well over the long term.
The biggest issue for Tilray is that it's not profitable and doesn't yet appear to be on a path to profitability. The restructuring announced in February should help on this front. Tilray's cash stockpile stood at close to $97 million at the end of 2019. The company closed a senior credit facility at the end of February that will give it another $60 million. But until the bottom-line bleeding is stopped, Tilray is likely to remain a highly volatile stock.
