What happened

Shares of Tilray (NASDAQ:TLRY) had fallen 11.5% as of 11:03 a.m. EST on Tuesday. The drop resulted from the Canadian cannabis producer's disappointing fourth-quarter update after the market closed on Monday.

Tilray announced Q4 revenue of $23 million, down 8% from the previous quarter. It also reported a big net loss in Q4 of $219.1 million, or $2.14 per share. This loss was significantly worse than the company's net loss in the third quarter of 2019.

Blue gloved hand holding a cannabis leaf in front of a Canadian flag

Image source: Getty Images.

So what

The main problem for Tilray is that the trends aren't its friends. Both the top and bottom lines for the company are heading in the wrong direction.

Tilray's primary issue on the top line is that its bulk cannabis revenue plunged nearly 61% from Q3. Its medical cannabis sales in Canada and in international markets also declined from the previous quarter. These headwinds weren't enough to offset a 7% quarter-over-quarter increase in revenue from the Canadian adult-use recreational marijuana market.

But the biggest challenge for Tilray overall is that it continues to lose a boatload of money. The company's deteriorating bottom line is concerning. Granted, there were some one-time items that caused the net loss in Q4 to be worse than it would otherwise have been. Tilray recorded over $68 million in inventory adjustments and wrote down over $112 million related to its collaboration with Authentic Brands Group. But the net loss would have been substantial even without these items. 

Now what

Tilray could benefit from some developments that are good for all Canadian marijuana stocks. Ontario is beginning to issue more retail cannabis licenses. The Cannabis 2.0 market for cannabis derivatives is just cranking up. In addition, the company has cut costs significantly as part of a restructuring announced last month. Still, expect Tilray stock to remain highly volatile this year.