Tilray Brands (TLRY 6.40%) won't hit $4 billion in revenue by 2024. The company has scrapped that target.
But it hasn't given up on growth as it continues to look for ways to expand. Whether it's through moving into different markets or going deeper into beverages, Tilray could be a much different business five years from now.
Here's how I expect things will shake out for Tilray and whether it's worth buying the pot stock today.
Investors shouldn't expect a U.S. pot business
The biggest question mark centers around marijuana legalization and whether the U.S. will finally pass legislation to permit marijuana use on a federal level. When it comes to legalization, I don't think it happens in less than five years.
My reasoning for this is that under President Joe Biden, there's been no movement on federal legalization. While bills have been introduced, there's not much to show for it thus far. And I'm not optimistic that if he were to win a second term in the White House, that would change. Remember, this is the same administration that fired a White House staffer because of their past marijuana use.
Meanwhile, if the Republicans win the White House in next election, the odds of legalization would be even less likely, given the party's traditionally hard stance on drugs.
Expansion and more M&A looks to be inevitable
If the U.S. doesn't legalize marijuana within the next five years, Tilray investors should anticipate a lot more activity with respect to mergers and acquisitions. The big question is where and how it will expand. For that, there are a couple of possibilities.
The first is in alcohol, where Tilray has been showing a significant interest. In November 2022, the company announced the acquisition of Montauk Brewing, a New York-based craft brewer. This complements an already growing Tilray beverage segment, which includes SweetWater Brewing and Breckenridge Distillery. These types of businesses make a lot of sense for Tilray to acquire, as they expand its presence in the U.S., and because they are modestly sized craft brewers, they won't cost a lot to buy.
NASDAQ: TLRY
Key Data Points
Another opportunity might be to expand in international markets. In Germany, Tilray has a pharmaceutical distribution business, CC Pharma, which gives it a presence in one of the top European markets. And Germany is also looking at legalizing marijuana.
If Germany legalizes marijuana, other European countries may follow suit. The caveat here is that even if legalization does occur, it doesn't mean that Tilray will be able to tap into that growth right away. But it will, however, open up some new opportunities for the cannabis company.
Tilray's top line should improve, but the bottom line might not
By loading up on acquisitions, Tilray's revenue should be higher five years from now.
Although that may seem obvious, investors shouldn't take it for granted -- the Canadian pot market is getting more competitive, and growth is by no means a given. Plus, acquiring craft brewers may only add a negligible amount of revenue for the business. And any growth in international cannabis markets may be limited over the next five years, as legalization can take time, and there could be restrictions on foreign competition.
Another problem is that by pursuing acquisitions, Tilray's business could very well remain deep in the red. Over the trailing 12 months, the company had an operating loss of $236 million on revenue of $603 million. That's a steep hole to climb out of, and acquisitions will add costs and redundancies along the way.
Should you invest in Tilray today?
Tilray's business will likely be more diverse in five years. Revenue should be higher, but losses may also be deeper. I still wouldn't suggest buying shares of Tilray today becasue there's a risky path ahead for the company. It isn't generating positive cash flow, and its financials aren't strong enough to support the kind of growth I think it will target without diluting shareholders.
There are better growth stocks out there that investors can buy that have stronger prospects than Tilray; it's simply not worth the risk.
