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Tilray Is No AMC Entertainment. Here's Why

By Rich Duprey - Jun 16, 2021 at 8:21AM

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Not all meme stocks are created alike.

Reddit traders are making a splash in the market, and the market is loving them back. The r/WallStreetBets crowd has sent shares of so-called meme stocks soaring as retail investors rally around beaten-down shares with heavy short interest, and in return, companies are thanking them for becoming invested in their businesses.

AMC Entertainment (AMC 7.56%) CEO Adam Aron made the bold move recently to bring retail investors further into the fold, delaying the movie theater chain's annual meeting so more small investors could attend, then giving them special rewards at the theater, like free popcorn. 

While marijuana producer Tilray (TLRY -5.17%) hasn't gone so far as to give away free pot to shareholders, CEO Irwin Simon wants it known he too appreciates the support the company has received. 

In an interview with CNBC, Simon said he "absolutely" welcomes the retail investor and is "very, very supportive. We love them." But that may be as far as the similarities between AMC and Tilray go -- and investors would be better off putting their money with the marijuana producer than the movie theater operator, even if they don't get any free stuff. 

Jar of marijuana buds and $100 bills.

Image source: Getty Images.

Ready to go higher

Tilray's business is growing. The big opportunity, of course, is in its recently completed acquisition of Aphria. While the company still carries Tilray's name, it's Aphria's management in charge (Simon was CEO of Aphria prior to the merger).

Tilray is the largest marijuana company, with combined pro forma trailing revenue of $685 million , and the merger puts the combined company's market capitalization almost on par with Canopy Growth, currently the biggest pot stock by that measure. Tilray has a market cap of $8.6 billion compared with Canopy's $9.6 billion.

Together, Tilray and Aphria now have a global recreational, medical, and pharmaceutical distribution business, though at the moment each remains largely segregated into specific geographies. The recreational marijuana business is in Canada, the medical marijuana business is in Europe and Australia, and the pharma business is centered in Germany.

It also has U.S.-based hemp and cannabidiol (CBD) businesses, as well as the craft brewing operations of SweetWater Brewing, which it acquired last November. SweetWater just introduced its Elevated H.A.Z.Y. IPA beer to be served exclusively on Delta Air Lines.

Tilray also has expanded global agreements in place with Sandoz, the generic-drug subsidiary of Novartis, as well as a joint venture with Anheuser-Busch InBev for nonalcoholic beverages containing THC and CBD.

Bringing down the curtain

Tilray is a company moving higher. Not so for AMC, which has counted on the economy reopening to get back to where it was prior to the COVID-19 pandemic -- and even then, its business was declining.

Not just AMC, but the movie industry as a whole has been contracting, as fewer tickets are being sold each year (though at higher prices). Ticket price inflation has simply masked the severity of the decline; in 2019, AMC's admission revenue declined by over 2% to $3.3 billion. AMC made up for it with higher concession-stand sales, but that again benefited from inflationary pressure.

During the recession the situation worsened, obviously, and AMC was forced to take on substantial debt to remain afloat, at one point almost begging for loans to allow it to make it through 2021.

AMC got those loans, ending its most recent quarter with $5.4 billion in long-term debt, $1.6 billion in current liabilities, and $4.9 billion in operating lease expenses. It has $800 million in operating lease payments due this year, plus another $1 billion due next year. AMC's ability to make these payments, as well as service its debt, calls into question its viability.

Over the past three months, AMC posted a net loss of $567 million and burned $313 million in cash.

Reddit traders may have ridden the short squeeze to phenomenal gains in a short period of time, but that was a risky gamble not built on the fundamentals of the theater operator's business.

A better stock to buy

Maybe some investors are riding AMC higher solely on the basis of the meme stock wave. For that strategy to be profitable, it requires exiting the position at just the right moment -- and that's not investing, it's gambling.

Tilray offers investors a much better risk-reward profile. And though the marijuana stock may have some similarities to meme stocks, it's no AMC Entertainment, and that's a good thing.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV and Delta Air Lines. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tilray Stock Quote
$3.85 (-5.17%) $0.21
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$33.96 (0.09%) $0.03
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$54.43 (-1.07%) $0.59
Novartis AG Stock Quote
Novartis AG
$85.58 (-2.12%) $-1.85
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$25.46 (7.56%) $1.79
Canopy Growth Stock Quote
Canopy Growth
$3.15 (-4.25%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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