Tilray Brands (TLRY) CEO Irwin Simon is no stranger to making lofty projections. He already put out a plan to hit $4 billion in annual revenue by the end of fiscal 2024. That's just two years away and would mean the business needs to generate sales growth of at least 537% between now and then (its sales totaled $628 million for the year ending May 31).
But as optimistic of a forecast as that is, I was even more taken aback by a startling prediction that Simon made in a recent interview.
Tilray's assets superior to the rest?
Simon's goal to hit $4 billion in annual revenue assumes that legalization takes place in Europe and the U.S. And in a recent interview with CNBC, he said that once that happens, there won't be another company out there "that will have the assets and the ability to grow and build brands like we will."
He's referring to the ancillary businesses that Tilray has, including brewing company Breckenridge Distillery and hemp foods business Manitoba Harvest. Tilray also has convertible notes in multi-state marijuana operator MedMen Enterprises that it could seek to convert and take a stake in once legalization takes place (currently it would run into issues owning a stake in the business given the federal ban on pot in the U.S.).
While Tilray does have some assets that can help it expand its business upon legalization, it's yet another overly positive forecast from the CEO. The challenge here is that even if Tilray does end up hitting its goal of $4 billion, that would likely mean it has been extremely aggressive with acquiring other businesses. And I'm not convinced with the quality of the companies it is pursuing. MedMen has reported losses totaling $143 million over the trailing 12 months, while Hexo, which Tilray has also partnered with, posted losses of more than 1 billion Canadian dollars ($780 million) during the past four quarters. These are the types of businesses that could end up depleting Tilray's assets, as opposed to helping enhance them.
Tilray ended May with just under $416 million in cash, down from $488 million a year ago. It's losing money and it's also potentially going to be adding assets into the mix that could make the situation worse.
Is Tilray underestimating its rivals?
A quick look around the industry and you can spot why claiming to have the best assets could be an overly bullish projection to make. Curaleaf Holdings has a presence in 22 states in the U.S. with more than 130 dispensaries and 26 cultivation sites as of an investor presentation in May. In November, it also launched Curaleaf International, focusing on the growth in the European market. This year, it expects to generate up to $1.5 billion in revenue.
Trulieve Cannabis acquired MSO Harvest Health last year, and as of the end of May, it had 167 dispensaries spanning 11 states, with cultivation and processing space totaling more than 4 million square feet. Trulieve is a business that's going to go toe to toe with Curaleaf this year as it is one of the top cannabis companies in the country.
To say without hesitation that Tilray will be better off than other cannabis companies is a long shot, at best. It's at a huge disadvantage in the U.S. when looking at other MSOs it will have to compete with and that are still building up their positions and expanding.
Even if Simon was only talking about other Canadian companies, I would still argue that his prediction is not likely to be true. Canopy Growth has a huge partner in beer maker Constellation Brands, and it has a pending deal with MSO Acreage Holdings and other companies. I believe it's the best-positioned Canadian-based company to enter the U.S. market, if and when legalization takes place.
Tilray has a strong presence in Europe through its medical distribution business, CC Pharma, and it could stand to benefit from legalization efforts in Germany and other parts of Europe. But to suggest that it is in the pole position after legalization takes place in both U.S. and European markets seems a bit much.
Investors should stay far away from Tilray
Tilray was a promising company when it and Aphria merged last year. Both were among the more profitable businesses in the cannabis industry. But now, out of a desire to grow at all costs, the company has been making moves lately that have been underwhelming; potentially acquiring Hexo and MedMen could be a disaster for its business.
The danger for Tilray investors is that Simon, with these extremely rosy projections, could be setting up the stock for a significant decline in value if the company falls short of expectations. This is a risky stock, and although it has fallen more than 70% in just the past year, investors shouldn't assume that it can't fall any lower or that it has hit a bottom.
