Amid the to-and-fro cannabis gold rush, Tilray Brands (TLRY -0.56%) is a contender to be the top dog. Though its shares are down by more than 85% over the past three years, the next 10 years might be different. The company will need to grow massively as more international marijuana markets open up via legalization and as increasing consumer interest drives pressure to innovate with products.
Can Tilray rise to the occasion? And if so, how much can investors expect it to grow? Let's examine its recent performance and sketch its trajectory through 2032 to find out.
Legalization could drive major returns
In 10 years, Tilray could be one of the world's largest cannabis companies, much like it is now. It'll likely have a mix of cannabis products and brands that are priced for different consumer populations, and it'll also probably still be selling alcoholic beverages as well. Recreational marijuana will likely continue to be its biggest segment although the distribution and wholesale segments could be large proportions of its total revenue as well.
No matter its revenue mix, Tilray will almost certainly be much larger, and it'll likely have gobbled up many of its smaller competitors and local operators in the service of expanding its reach into the global markets for cannabis products. Before that process can really take off, marijuana legalization will need to advance in the U.S. as well as in the EU. A report by Research and Markets suggests the global marijuana market will be worth around $134.4 billion annually by 2030, assuming progress with legalization results in the opening of new markets.
If Tilray can grab a mere 5% of that pie, it'll have annual revenue of around $6.7 billion. Compared to its trailing-12-month revenue of over $613.5 million, that implies its top line could grow by as much as 992%, which works out to be a compound annual growth rate (CAGR) of around 27%. That's a fairly quick pace of growth, and it's also a bit faster than the company's top-line expansion over the last three fiscal years, which grew at a CAGR of just over 17%. But it might be doable when major new markets open for business.
A few obstacles to becoming top dog
Tilray's road to market dominance isn't guaranteed, and the company will need to fix a handful of its issues along the way for the next 10 years to go smoothly for investors. First, it's deeply unprofitable, and over the last three years, its total expenses have risen as a percentage of its quarterly revenue, driving its margin down even further.
In the last 12 months, its cash outflows were more than $151 million. Right now, it only has around $490.6 million in cash and equivalents, so it might need to trim its overhead, take out new debt, or issue new stock to stay solvent within the next three years. At the same time, it already has a debt load of around $657.8 million, $82.3 million of which is due within a year. So without progress toward profitability, it won't be able to take out new debt at attractive interest rates, and its burden could balloon quite quickly and starve future capital for investments in growth.
Then there's the fact that Tilray will eventually need to fight competitors for market share. It's already struggling with this in its home market of Canada, where it claims a 8.5% slice as of Q1 this year, down from 16% in its first quarter of FY 2022. As companies jockey for their share of the global cannabis markets, it'll put pressure on their margins, and it's hard to see a situation in which Tilray itself is ever strongly profitable given its difficulties with holding market share today while unprofitable.
So is it a buy?
The risks of Tilray continuing to struggle with its profitability and market share are high, and its performance is trending in the wrong direction for both. That means this stock is probably not a good choice for people who can't tolerate seeing their investments underwater for a few years.
On the other hand, massive growth of the global cannabis market is going to happen, and Tilray is already among the industry's leaders, so it should be among the best equipped to survive and eventually thrive. If you have a long-term investing horizon and a willingness to embrace above-average risk, it's not a crazy idea to buy some Tilray stock to hopefully benefit from the industry's coming worldwide boom.
