When Canadian cannabis companies Tilray (TLRY 5.20%) and Aphria announced their merger in 2020, they estimated their pro forma revenue to be $685 million, referring to the combined entity as the "Largest Global Cannabis Company." However, the odds of it being the largest in terms of revenue over the coming year are slim. Many U.S.-based cannabis businesses could very well end up ahead.

But the company's management still has high hopes. On Tilray's recent earnings call, they said that their goal for 2024 is to hit $4 billion in revenue. Is that a pie-in-the-sky target that the company is likely to fall well short of, or should investors genuinely expect that level of growth from the business?

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Here's what Tilray is counting on

For the fiscal year that ended May 31, Tilray reported net revenue of $513 million, up 27% year over year. That didn't include full-year revenue from both cannabis businesses, as the Aphria-Tilray merger only closed on May 3. However, even combined, the two companies likely aren't even at the $1 billion mark yet. Therefore, the top line would need to more than quadruple from where it is today to hit $4 billion. While there has been growth in the cannabis sector, many Canadian pot companies have been struggling to find new avenues to boost their sales. When Aphria reported its previous results, for the quarter ending Feb. 28, its net revenue of 154 million Canadian dollars was down 4.3% from the previous period.  

Management is banking on a number of factors to drive its growth to $4 billion in revenue by 2024. The first, and perhaps most obvious, would be federal legalization of cannabis in the U.S., which management anticipates will happen by then. CEO Irwin Simon expects that Tilray would be able to bring in between $1 billion and $1.5 billion per year in revenue from that new market alone. The company didn't mention specific target figures for Canada, but says that it is looking to grow sales in that market as well, in part with new product offerings such as beverages and edibles. Then there's the European market, where it is hoping to hit $1 billion in annual revenue, up from less than $300 million today.

Is this a realistic goal?

It's not completely unrealistic to expect that Tilray could hit $4 billion in revenue in a few years, especially if it makes another key acquisition or two along the way. But based on its operations today -- and expecting the U.S. market to contribute only $1.5 billion of those projected sales, if and when legalization does occur -- I think it's an incredibly bullish forecast. 

In fact, the most achievable target here may be the potential U.S. sales revenue. But that comes with some big caveats -- federal legalization would have to be in place well before 2024 to make that possible, and Tilray would need time to set up operations in the U.S. or broker a deal with an existing multi-state operator. There are hopes that federal cannabis legalization will take place in the U.S. soon, especially after Senate Majority Leader Chuck Schumer unveiled a draft bill to that end in July. In January, the CEO at fellow Canadian pot company Canopy Growth told BNN Bloomberg that he expected his company to be entering the U.S. market within 12 months.

Let's assume for now that legalization in the U.S. takes place and Tilray hits $1.5 billion in revenue from a market that it can't even access today. The other parts of the forecast are actually even more optimistic. In its recently ended fiscal 2021, the company generated $277 million from distribution revenue -- $271 million of which came from its CC Pharma business in Europe. Revenue from the Europe/Middle East/Asia region totaled $279 million last year and grew at a rate of just 3%. However, compared to 2019, the growth rate was 133%. If the pandemic isn't impacting operations in Europe in the years ahead, then the company's growth rate there should recover. But absent a big acquisition in Europe, expecting Tilray to hit $1 billion in that market by 2024 is incredibly optimistic.

The company's rosiest hopes of all might involve Canada and its existing North American operations, which include the sales of legal hemp products in the U.S.

For its fiscal 2021, Tilray's North American revenue totaled $229 million. Part of that came from its U.S.-based beverage company, SweetWater Brewing, but by and large the money came from sales made in the Canadian market. The results actually include a full year of Aphria's numbers and approximately one month of revenue from the business that prior to the merger was known as Tilray.

In its last report before the acquisition, Tilray reported approximately $176 million in revenue for North America the year ending Dec. 31. Add that into the mix (though it does include an extra month), and the combined business would be sitting at roughly $405 million in revenue for North America for a full year. Note that Tilray's sales grew 26% for the full year. For this area of the business to get to $1.5 billion and provide the remaining chunk of revenue required for the company to hit $4 billion, the top line would need to grow at an average annualized rate of 55% over the next three years. That is simply too optimistic for me.

Should you buy Tilray's stock?

Cannabis companies that throw out aggressive sales targets typically haven't reached them. In early 2019, Bruce Linton, then the CEO of Canopy Growth, projected his company would hit CA$1 billion in sales that fiscal year. The company is nowhere near that; over the past 12 months, it has generated just CA$547 million.

The players in this industry have often gotten far ahead of themselves, and Tilray could be doing that now. Its goal of $4 billion in revenue by 2024 is attainable, but many things would need to go just right for that to happen. Odds are, the company will fall short because at least one of the markets it is banking on won't grow as well as management expects. Although Tilray may be one of the more promising Canadian pot stocks to own, it's still not one I would invest in, especially now that it has set such a lofty target for itself -- one that may be too much of a reach.