Tilray Brands (TLRY -2.61%) is a badly beaten down marijuana stock. The company may boast of its adjusted earnings numbers and long-term growth opportunities, but there's no denying this is a business in trouble. All you need to do is take a look at one chart to see what's wrong with the company, and why it remains an ultra-risky investment.
The company's operations are deeply unprofitable
Tilray Brands regularly talks about its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), but those are profit numbers that are heavily adjusted. The reality is that for the most part, the business doesn't make money. Tilray's operating income has routinely been in the red:
Data source: YCharts
Over the trailing 12 months, the company has incurred operating losses totaling $235.5 million on revenue of $602.5 million. And operating cash burn during that time has been just under $84 million. Tilray's business isn't in good shape, and if things don't drastically improve, it'll be more of the same for the company. Year to date, Tilray stock is down 38% as investors have clearly been frustrated.
The biggest problem for the business ironically comes down to its core operations.
Cannabis is weighing down the business
The following chart of Tilray's business segments helps illustrate exactly what's wrong with the company. It's cannabis:

Source: Company's Q3 filings. Chart by author.
Cannabis is the only segment in Tilray's business that is unprofitable. The above chart shows the company's net revenue and gross profit for the third quarter, which ended on Feb. 28. After cost of goods sold, cannabis was in the red with a loss of $32.8 million. With a negative 69% gross margin, it's a big concern for investors. Even though the other segments had positive gross profits, the overall total across the company was a loss of $11.7 million. If the company isn't in the black after only factoring in the cost of goods sold and no other expenses, there's little hope for the business to be able to stay out of the red.
And in a highly competitive cannabis market in Canada, where marijuana prices continue to fall, it's hard to see a path where Tilray can turn things around anytime soon.
Tilray would need to get out of the cannabis business or significantly scale back on it for its bottom line to improve. But that doesn't appear to be the plan, as it recently closed on its acquisition of Canadian cannabis producer Hexo, which will further entrench it in the Canadian marijuana market and may only exacerbate these problems.
Investors should avoid Tilray Brands until it makes serious changes
Tilray has diversified into other areas besides cannabis, including alcohol, by making acquisitions. But as you can see from the earlier chart, cannabis has the potential to create a huge hole for the business, one that the other segments may not be strong enough to offset.
Either the other segments need to become more significant parts of Tilray's operations, or it needs to significantly scale back its cannabis business. If it were to do that, Tilray would be in much better position to potentially turn a profit.
Until it does something drastic to minimize its exposure to the cannabis segment, this is going to continue to be a very risky investment to hold, and one that investors are simply better off avoiding.