Editor's note: Corrects sixth paragraph of article published April 19 to indicate that Aphria was the acquirer, not Tilray.
Tilray Brands (TLRY 0.29%), based in Ontario, has been my favorite among Canadian cannabis companies. In a highly competitive industry, the company implemented some smart growth strategies that favored it. However, industry headwinds have taken their toll, including in its most recent quarterly results.
Tilray's long-term prospects remain appealing. Its global exposure could give it a competitive advantage in this rapidly expanding industry. Let's dig in to see why this could be an excellent time to purchase this marijuana stock.
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Tilray reported mixed quarterly results
For the fiscal third quarter ended Feb. 28, Tilray's total net revenue fell 4% year over year to $145.6 million, although it rose slightly from $144 million in the previous quarter. In addition to the industry's problem of oversupply, management stated that excise taxes have taken a toll on the company's revenue.
Tilray's net loss for the quarter was $1.2 billion, compared to a profit of $52.5 million in the previous quarter. The net loss was caused by a quarterly non-cash impairment charge of $1.1 billion. According to management, higher interest rates and a dip in the company's market cap led to the charge.
Tilray's competitors continue to struggle to report positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Meanwhile, Tilray recorded its 16th consecutive quarter of positive adjusted EBITDA, which totaled $14 million.
It's worth noting that Tilray was bought by cannabis company Aphria in 2021 in a deal valued at $3.9 billion. The combined entity, renamed Tilray Brands after the deal closed, has benefited from this combination in several ways.
External headwinds such as excess supply, fierce competition, regulatory impediments, and other factors are weighing heavily on the most Canadian cannabis businesses. Tilray has had difficult times too, but it has also navigated these turbulent waters better than its peers. The majority of its rival are still struggling to generate positive EBITDA.
Global market exposure is a moat for Tilray
Few cannabis companies have grown as fast as Tilray in the global market. Because of Aphria's presence in the European market before the merger, Tilray is now well positioned there. In Portugal and Germany, the company has cultivation and distribution operations. Distribution revenue in the quarter increased 5% year over year to $65.4 million. The company derives a sizable portion of its distribution revenue from its German subsidiary CC Pharma.
Germany may soon legalize recreational marijuana, and other European countries may follow. Because of its strong position in Germany, management believes it will have an early mover advantage as legalization spreads throughout Europe.This global exposure could be a competitive advantage in the company's expansion in the long term.
The majority of Canadian marijuana companies are relying on the U.S. market. However, U.S. legalization could be a long shot. Meanwhile, the European market is expanding rapidly. By 2028, the European cannabis market is forecast to grow at a compound annual rate of 61%, reaching $14 billion.
Tilray is interested in diversifying its business beyond the cannabis market, which could lead to more mergers and acquisitions. Its beverage segment already includes investments such as SweetWater Brewing, Breckenridge Distillery, and Montauk Brewing, all of which aid in its business expansion in the U.S.It also generates wellness revenue as a result of its acquisition of a U.S.-based hemp company, Manitoba Harvest, in 2019 for CA$419 million (about $313 million).
Tilray anticipates generating positive free cash flow in fiscal 2023, which will help support its growth strategies. It also had a strong balance sheet at the end of the quarter, with $408.3 million in cash and marketable securities.
Tilray is trading at a price-to-sales ratio of 2.4, making it an excellent time to invest. It is a potentially high-growth but risky investment, so it is best suited for investors with a higher-risk appetite. A small position in this cannabis stock, along with a diversified portfolio of stable stocks, would be a worthwhile long-term investment.
