You know a company had a really good quarterly update when its stock skyrockets more than 25%. And that's exactly what happened with Tilray (TLRY -5.29%) on Wednesday. Shares of the Canadian cannabis producer soared after it reported fiscal year 2021 fourth-quarter results before the market opened.

Tilray shareholders are on cloud nine after the company announced unexpectedly positive results. But is the stock a buy after its surprising Q4 profit?

Cannabis leaf on top of $100 bills.

Image source: Getty Images.

A big surprise

Tilray delivered a big surprise with its first quarterly update after merging with Aphria -- a profit. The company announced net income of $33.6 million, or $0.18 per share. That was a huge improvement from the net loss of $84.3 million, or $0.39 per share, in the prior-year period. It was also a lot better than the consensus analysts' estimate of a loss of $0.12 per share.

The company also reported its ninth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Tilray posted adjusted EBITDA of $12.3 million in Q4, up 285% year over year. Free cash flow more than doubled from the same quarter in 2020 to $3.3 million. 

As you might expect, Tilray also generated strong top-line growth in its fiscal fourth quarter. The cannabis producer announced net revenue of $142.2 million, a 25% year-over-year increase. 

Tilray chairman and CEO Irwin Simon was pleased with his company's performance. Simon stated in the press release announcing Tilray's Q4 results:

In a very short period of time since our business combination was finalized, we transformed and strengthened Tilray, delivered solid results amid continued COVID-19 lockdowns and restrictions and achieved $35 million in synergies to date -- well on our way to delivering $80 million in cost savings over the next 16 months. 

The devil's in the details

Not everything was quite as rosy as it seemed at first glance, though. For one thing, Tilray's revenue came in well below the consensus analysts' estimate of $199 million. Of course, analysts probably had a challenge with their projections this quarter due to the merger of Aphria and Tilray.

More importantly, Tilray posted an operating loss of $73.7 million in the fourth quarter. So how did the company achieve a profit? It recorded $121.5 million in non-operating income.

Tilray CFO Carl Merton explained in the company's earnings conference call. He said that this non-operating income stemmed from "an unrealized gain on our convertible debentures, driven primarily by the change in our share price and the change in the trading price of the convertible debentures." 

During the three months of the company's fiscal Q4 (which ended on May 31, 2021), Tilray's share price fell nearly 37%. This gave the company extra non-operating income -- at least from an accounting perspective.  

In other words, Tilray's surprising profit stemmed entirely from its stock plunging. The reality is that shareholders would have been better off if the company had posted a loss.

To buy or not to buy?

My view on Tilray hasn't changed after its Q4 update. I still don't see the Canadian pot stock as a great pick.

Tilray has three primary paths for growth. First, there's the Canadian market. Even though the company now commands the top market share in Canada, this market doesn't offer enough opportunity to justify Tilray's current valuation.

Next, there's the European medical cannabis market. Irwin Simon thinks that Tilray can generate $1 billion of sales in Europe by the end of 2024. Maybe so, but the company's distribution revenue from Germany-based CC Pharma fell in the latest quarter.

Finally, Tilray hopes to succeed in the U.S. market. The company already has hemp foods maker Manitoba Harvest and craft beer maker SweetWater Brewing. However, Tilray can't compete in the U.S. cannabis market as long as marijuana remains illegal at the federal level.

Simon acknowledged that the U.S. is the biggest opportunity for Tilray. For now, though, it's an elusive opportunity. The company's hope is that federal laws will change. Tilray would then likely try to acquire one or more U.S. multistate operators (MSOs).

That leads me to my main reason for not being a big fan of Tilray right now. Several of those U.S. MSOs already offer stronger growth prospects at more attractive valuations than Tilray -- even without marijuana being legal at the federal level. I think these stocks are much better alternatives to buy right now than Tilray is.