Cannabis company Tilray (TLRY -1.17%) is hoping to reach $4 billion in annual revenue by 2024. For a company that is currently at a run rate of less than $700 million -- it has a long way to go in reaching that target.

Key to the company reaching its goal are dominating Canada and hitting a 30% market share in the country. By Tilray's own estimate of 16%, that would be a much larger piece of a pie that's only getting bigger as the marijuana industry evolves. Achieving that organically would be a stretch at best, and that's why, if Tilray is serious about its goal, at least one big acquisition is still likely in the cards for the business in the next year or two.

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Tilray would need to double its revenue to hit just its goal for the Canadian market

For Tilray to win 30% market share in Canada, its top line would need to more than double. Although it claims to have a 16% market share today, according to analysts at Stifel, it might be closer to 12%. Either way, it's got a long way to go.

And the market will get bigger in Canada, too. Analysts from cannabis research company BDSA project that the Canadian pot market will grow at a compounded annual growth rate (CAGR) of 26% until 2025, when it will be worth $6.1 billion. If that proves to be correct, by 2024 the market could be worth roughly $4.8 billion. At that rate, Tilray would need to generate close to $1.4 billion to achieve its goal.

Without the help of acquisitions, it's a target that may not be realistic. No Canadian marijuana company has even come close to hitting $1 billion in annual revenue, let alone $1.4 billion. That's why if you think Tilray is serious about hitting its goal, you should expect at least one more big acquisition in Canada.

There are many potential suitors the company could consider

When Tilray acquired Aphria, it snagged one of the top marijuana producers in Canada. And if it wants to accelerate its growth, it likely would want to go for another large company again. Some of the bigger cannabis producers that the company could consider include:

  • Aurora Cannabis (ACB -4.32%), which has generated 245 million Canadian dollars over the trailing 12 months. With net losses of nearly CA$700 million during that time, it would be a headache for Tilray to fix this business, but it would be a way to quickly bolster its top line.
  • Sundial Growers (SNDL -0.27%) is much smaller with just CA$46 million in revenue in the past year, but the company has been making some key acquisitions of late, including two in the retail segment, and it is now a much bigger business. 
  • Charlotte's Web (CWBHF -1.09%) is a large hemp producer that sells products in both Canada and the U.S. It would not only strengthen Tilray's hemp position, but also give it another way to grow revenue south of the border. Tilray recently acquired convertible notes from multi-state operator MedMen, but it can't convert them or own the company just yet since pot is illegal in the U.S. However, hemp is federally legal and Charlotte's Web would offer a way for Tilray to instantly grow its sales in both countries. Over the past four quarters, Charlotte's Web has brought in $100 million in revenue.

These are just some of the more attractive options for Tilray right now. And the one quick takeaway that's apparent from all this: One deal likely wouldn't be enough for Tilray to achieve its target. It would likely need to take on multiple acquisitions to make its goal a reality.

Investors should brace for dilution

Where there are many acquisitions, there are also significant share offerings. The deal to acquire Aphria was an all-stock transaction, and there's little reason to assume that future acquisitions wouldn't be structured the same way. Tilray has burned through $82 million in cash just from its operating activities during the past year, and it's not in a strong enough financial position for involving cash in an acquisition to be likely. 

That puts investors in a bind because while acquisitions could help Tilray hit the $4 billion mark in revenue, it would likely require significant share issues and dilution along the way, and that could negate any gains the stock makes as a result of that. And that's a big reason I would avoid this stock altogether.

While there's potential for some gains here (that's if you assume Tilray will hit its targets), investors should be wary of the risk of dilution. Acquisitions can certainly help the company's top line, but they can also make it difficult to avoid hefty losses and significant cash burn. Cannabis investors are better off looking at more appealing growth stocks in the industry.