It has been more than a year since Tilray Brands (TLRY +1.03%) merged with cannabis producer Aphria. The combined entity is now the top marijuana business in the Canadian pot market, eclipsing both Canopy Growth and Aurora Cannabis in revenue. And it's still looking to get bigger, focusing on the European and U.S. pot markets.
How would you have done if you had invested $1,000 into Tilray's stock a couple of years ago, before the company's big merger?
NASDAQ: TLRY
Key Data Points
Tilray's stock has struggled despite the business getting larger
On Sept. 30, 2020, shares of Tilray closed at a price of $4.85. If you had invested $1,000 into the company back then, that would have been enough to acquire approximately 206 shares. Today, that investment would be worth around $570. That's a loss of 43% over a two-year period. Although that's worse than the S&P 500's performance (it has gained 9%), Tilray stock has done better than the Horizons Marijuana Life Sciences ETF, which has fallen 45% during that time frame.
Even if it's better than the average pot stock, Tilray's performance has been underwhelming for investors, especially given the high hopes around the business when Aphria and Tilray merged. Touted as the "largest global cannabis company" when the deal was announced in December 2020, Tilray has failed to live up to the hype; over the trailing 12 months, its revenue has totaled $628.4 million -- less than the $685 million in pro forma revenue the company cited in the press release announcing the business combination.
Will the future be more promising for Tilray?
Growth-oriented investors will want to focus on the opportunities ahead for the business, which, management believes, lie in Europe and the U.S. The company believes it can hit $4 billion in annual revenue by 2024. That forecast centers around the possibilities in these markets and also depends on legalization in the U.S., which is by no means a certainty of happening by then.
Tilray has been looking for ways to enter the U.S. market in any way that it can. In late 2021, it announced the acquisition of Colorado-based alcohol company Breckenridge Distillery, which is known for its award-winning whiskey products. While it can't expand into cannabis due to the federal ban on marijuana in the U.S., acquiring companies like Breckenridge can help Tilray penetrate the U.S. market through other ancillary businesses. The company has also acquired convertible notes in multi-state marijuana producer MedMen Enterprises, which Tilray could convert into shares upon legalization, potentially setting up a path for it to purchase the business in the future.
In Europe, Tilray has CC Pharma, a medical distributor that serves 13,000 pharmacies in Germany and has a network of suppliers it works with in other countries. Germany is looking to potentially legalize marijuana for recreational use, and CC Pharma could help Tilray take advantage of that opportunity if and when it arises.
There's plenty of potential for Tilray to generate strong growth if the U.S. and European markets open up in the near future, which could help drive some much-needed bullishness behind the stock.
Should you buy Tilray's stock today?
On Tuesday, Tilray's stock was trading around $2.80, not far from its 52-week low of $2.65. Investors are paying just two times revenue for the cannabis producer, which is cheaper than the multiple of more than seven that the stock was valued at a year ago.
Although it's cheaper, I would avoid the stock simply because of Tilray's overly optimistic $4 billion forecast. Of course, shares of Tilray would take off if the company does achieve its ambitious forecast, but the more likely scenario is that sooner or later, management ends up saying it won't happen. When that takes place, the stock could sink much lower.
Tilray hasn't been a great stock to own over the past two years, and given management's overconfidence and overly bullish forecasts for the future, I'm not optimistic that its future will be any better. Investors are better off steering clear of what remains a risky stock in Tilray.
