Cannabis stocks have been on fire of late as hopes surrounding marijuana reform in the U.S. have put them back into the spotlight. Today I'll look at two of the most popular cannabis stocks on the Nasdaq: Tilray Brands (TLRY 2.00%) and SNDL (SNDL 2.83%).
These businesses both have growth on their minds, but which one is more likely to achieve it and succeed in the long run without significantly diluting its shareholders along the way?
The case for Tilray
Tilray is a top cannabis company in Canada, with sales totaling $613.6 million over the trailing 12 months. Although the company is technically still incurring net losses, Tilray is known for being one of the more profitable businesses in the industry, achieving adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability for 14 straight quarters.
The company is also working on trimming its costs even further, and this year (fiscal 2023) it projects its adjusted EBITDA to be as high as $80 million. That would be a 67% improvement from the $48 million adjusted EBITDA it posted in fiscal 2022 (which ended on May 31). Tilray is doing all this while also leading the Canadian and German pot markets.
Tilray has nearly $500 million in cash at its disposal as of the end of August which could help it pursue other acquisitions and set up the business for long-term growth. In the long run, it also has a deal waiting in the wings with multi-state marijuana operator MedMen Enterprises. And while federal legalization isn't a sure shot in the U.S., there's renewed hope that marijuana reform may not be that far away.
Shares of Tilray are near 52-week lows, and there could be significant upside for the company in the future if it can continue posting an adjusted EBITDA profit while expanding its business.
The case for SNDL
SNDL has diversified and become much less reliant on cannabis for its growth. When it last reported earnings in August, the bulk of its revenue came from liquor retail; the company closed on its acquisition of liquor store operator Alcanna earlier this year. Sales from that business for the period ending June 30 totaled 148.6 million Canadian dollars and were a huge reason SNDL's sales soared an incredible 2,344% year-over-year to CA$223.7 million overall.
The company is also a top cannabis retail operator in the country, with nearly 200 pot shops in its portfolio right now.
Although SNDL doesn't have the impressive track record for adjusted EBITDA that Tilray does. SNDL did report an adjusted EBITDA profit in the most recent quarter across its major business units (liquor retail, cannabis retail, and cannabis cultivation and production). If not for significant losses in its investments segment, the company's adjusted EBITDA would have been in the black.
SNDL is continuing to pursue growth opportunities, announcing on Aug. 22 plans to acquire cannabis company Valens in a share-based deal. Through the acquisition, SNDL projects its overall market share in the Canadian cannabis market will rise to 4.5%, and in the cannabis 2.0 segment (edibles, vapes, etc.) will be 5.2%, making the company "a top 10 player in both categories."
Investors are better off going with Tilray
Both of these stocks carry risks with them as neither business is growing organically, and that may not change anytime soon. And even if they are adjusted EBITDA positive, they are still cash-burning businesses that may only end up diluting investors in their pursuit of acquisitions and growth in the future. Tilray, however, projects that this fiscal year it will generate positive free cash flow.
Tilray's track record for dilution is also a lot better than SNDL's:
SNDL Shares Outstanding data by YCharts
SNDL's aggressive growth strategy makes it likely that its stock will continue sinking (shares of both SNDL and Tilray are down around 60% this year).
Overall, Tilray's business is in a bit better shape than SNDL, and overall it looks to be the better growth stock in the long run given its more impressive financials.
