Tilray (TLRY 7.85%) is the dominant cannabis retailer in Canada. Over the past 12 months, the company had $628.4 million in revenue, nearly twice as much as the No. 2 and No. 3 marijuana retailers north of the border -- SNDL and Canopy Growth. Tilray's reach extends beyond Canada with more than 20 brands in 20 countries, including its beer and alcohol brands.
That hasn't kept it from having a tough year, and its losses are dwarfing those of its competitors. Its shares are down more than 50% over the past year and about 10% in 2023. The shares hit a 52-week low of $2.40 on March 10.
Does its reduced price now make Tilray a deal or is this a stock investors should avoid? Here are two reasons not to buy Tilray now and one reason you should.
Negative No. 1: Tilray has been in the news, and not in a good way
According to Bloomberg News, Delaware's Court of Chancery recently approved a $39.9 million settlement of a shareholder derivative lawsuit against Tilray, in addition to an award of $6.5 million in fees to plaintiffs' attorneys. The lawsuit claimed the company made false statements regarding its inventory and gross margins, along with the value of Tilray's agreement with Authentic Brands Group (ABG).
One shareholder lawsuit is bad enough, but another lawsuit was filed against the company on March 1 in the Southern District of New York by shareholder Michael Hudson, alleging breaches of fiduciary duties, unjust enrichment, and wasted corporate assets in violations of the Securities Exchange Act of 1934. The suit said that Tilray misled investors regarding its inventory and gross margins, as well as misstated the value of the company's agreement with ABG. Hudson's lawsuit said in the two quarters after Tilray's 2018 initial public offering on the Nasdaq that its gross margin fell from 55% to 31%.
Plenty of companies, even successful ones, face shareholder lawsuits. But the negative publicity is enough to keep the stock's price depressed.
Negative No. 2: Tilray's revenue, margins stumbled
Tilray's struggles are hardly unique among Canadian cannabis retailers. Price compression, brought on by a glut of cannabis, has hurt companies' margins across the board.
Six months into its fiscal 2023 year ended Nov. 30, Tilray's revenue was reported as $297.4 million, down 8% year over year. In the second quarter, revenue was $144.1 million, down 7% from the second quarter of fiscal 2022 and down 15% sequentially. It also reported an earnings per share (EPS) loss of $0.11 in the quarter, in line with the same period last year.
Even at its current price, Tilray's shares appear expensive compared to most of its competitors, with a price-to-sales ratio of 2.2.
TCNNF PS Ratio data by YCharts
Positive No. 1: Tilray's alcohol business, size give it the diversity to survive
Tilray has expanded into alcohol sales with its purchases of U.S. breweries SweetWater Brewing and Montauk Brewing, as well as the Breckenridge Distillery in Colorado. Those moves are helping the company's numbers from being worse.
In the second quarter, beverage-alcohol sales rose 56% year over year to $21.4 million. Through six months, that segment had sales of $42 million, or 14% of the company's total revenue, up from 9% in the same period a year ago.
In some ways, because of that diversity, Tilray is in better health than some of its competitors. It has $433.5 million in cash and retains the top market share in cannabis sales in Canada at 8.3%, and it just reported its 15th consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The company should benefit as Europe opens up more to cannabis sales, and because of its U.S. beverage interests, it is as well positioned as any Canadian company to enter the U.S. cannabis market if that avenue opens. It's no surprise that Chief Executive Officer Irwin D. Simon calls much of the company's U.S. beverage interests as "cannabis adjacent."
Tilray also may find growth through more acquisitions. It already has bought up convertible debt from Canadian cannabis retailer Hexo and U.S.-based cannabis company MedMen Enterprises, and the purchase of a U.S.-based company would give it an entryway into the more lucrative U.S. cannabis market.
