What happened
Tilray (TLRY) shareholders lost ground to the market in December, with the stock slumping 31% compared to a 4% spike in the S&P 500, according to data provided by S&P Global Market Intelligence.
The drop came as investors moved away from the marijuana space after pouring into the sector through much of 2021. Tilray shares had been up more than 200% in early 2021 but finished the year in negative territory compared to a 27% surge in the wider stock market.
Image source: Getty Images.
So what
December brought two important updates on the pot stock's business. Tilray announced early in the month that it is acquiring Breckenridge Distillery in a bid to bolster its consumer products portfolio and access to the U.S. market. The Colorado-based distillery will immediately boost Tilray's sales, management said, but the financial terms weren't disclosed.
But Tilray's stock moved more directly in conjunction with pressure on the wider sector in late December. Peer Hexo announced disappointing quarterly results that dragged down the entire pot stock market. Its string of acquisitions failed to speed up revenue growth and contributed to mounting losses, bolstering concerns about the ultimate profitability potential in this space.
Now what
Tilray is in a much stronger financial position than Hexo, although it is still burning through cash as it invests heavily in the business. Net losses in the third quarter landed at $35 million compared to $22 million a year earlier.
Investors can accept even wider losses if Tilray can show a clear path toward management's goal of surpassing $4 billion in annual revenue by 2024. Shareholders will be demanding evidence of sustainable profitability to go along with that growth, too.
Its most recent fiscal-year revenue barely crossed $500 million, and so Tilray has a long way to go before investors have confidence in its bigger ambitions. But more clarity is on the way. Tilray will announce fiscal second-quarter earnings results on Jan. 10, and Wall Street is expecting to see strong sales gains in the report. Revenue should approach $1 billion this fiscal year, in fact.
Investor returns from here will largely depend on whether Tilray can maintain the momentum in its core cannabis business for several more years, all while avoiding any major acquisition blunders on the part of the management team.
