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Why Tilray Stock Surged 22.4% in May

By Billy Duberstein – Jun 7, 2020 at 2:45PM

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The cannabis company delivered better-than-expected results and got a further boost from a big state moving towards legalization.

What happened

Shares of Tilray (TLRY) rose 22.4% in May, according to data from S&P Global Market Intelligence. The company began the month by giving a better-than-expected earnings report, as cannabis sales remained relatively unaffected by coronavirus during the first quarter.

Later in the month, all pot stocks got a boost as New York Gov. Andrew Cuomo said he intended to move cannabis legalization forward in New York state.

A hammer and gavel along with several buds of cannabis on the gavel.

Image source: Getty Images.

So what

During the first quarter, Tilray continued its torrid growth as production scaled up to meet demand. Revenue surged 126% to $52.1 million, which beat analyst expectations. The company's largest adult use segment, which makes up two-thirds of sales, surged 165%, while Canada medical grew 35%, international medical rocketed 221%, with hemp sales grew 282%.

The company did continue to post big net losses, posting a net loss of $184.1 million during the quarter; however, that marked a 16% improvement over the prior quarter, showing improving trends as sales scale up. Moreover, many of those losses were non-cash charges, such as goodwill impairments and a warrant liability related to the company's recent issuance of common stock

Yet measuring profitability by adjusted EBITDA, and the loss was only $19.7 million. However, that loss was an increase over the prior-year quarter. Still, management put forward a goal of reaching positive EBITDA by the end of 2020.

After the improved results and guidance, Tilray got yet another boost when governor Andrew Cuomo announced his intention to move forward with adult-use legalization in the state of New York. That being said, Cuomo has attempted the move before without success. Still, with the state in a financial hole due to coronavirus, the tax revenue could get more state legislators on board this time around. 

Now what

While Tilray's stock had a nice bounce in May, the stock is still down roughly 80% over the past year, and even more from the bubble-icious prices it achieved shortly after its 2018 IPO. Today, Tilray's stock price is much more reasonable, with a market cap just over $1.1 billion. However, its large net losses, along with its status as a cannabis stock, with all of the legal complications and outstanding financial questions that come with it, make it only appropriate for speculative investors with strong views about the future of the industry.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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