Tilray Brands (TLRY 1.71%) is one of the world's largest cannabis companies, and if you're like most investors, that sounds like it means the possibility of outsized profits for shareholders. Now that it's making a serious play to conquer the craft beer market in the U.S. too, there's an even more serious chance that the stock could be a great wealth-builder, at least in theory.
In practice, will this business be as lucrative for investors as its setup implies? Let's break that question down by first examining Tilray's ambitions, as well as its actual performance.
What's the plan for stoking growth?
Tilray has two main growth avenues in the coming years. The first is its traditional marijuana segment, which earned it $70 million in its fiscal Q1 ended Aug. 31 thanks to its sales in Canada and several European countries. The second is its alcohol segment, which operates in the U.S. and Canada. Sales of booze brought in $24 million in the same period. While the Canadian cannabis market is tapped out and saturated at the moment, implying higher costs of gaining market share, the company has so far been successful in gaining craft beer market share via acquisitions in the U.S., which could continue. And it also plans to enter the U.S. cannabis market when legalization proceeds at the federal level.
So under ideal conditions, by the end of the decade Tilray will be North America's dominant cannabis player, and it'll also be one of the biggest craft beer brewers too. Making inroads with its corporate branding would be essential to securing those two accolades. In other words, it could well develop branding and products that customers are loyal to, building it a competitive advantage in the form of an economic moat. Under this hypothetical setup, the business has many of the hallmarks of a millionaire-maker stock.
Let's assume you're going to make an investment of $10,000 into Tilray's shares. If you held those shares for a full decade, and they increased in value every single year by 25%, they'd be worth around $93,000. It would be great to pick up a nine-bagger stock, to say the least. And you would definitely be closer along the way to being a millionaire.
Don't hold your breath
But the chances of this stock growing so steadily are close to zero, and the ideal conditions described above are unlikely to materialize. Over the past five years, which saw the legalization of recreational marijuana use in Tilray's home market of Canada and an immense scale-up of the industry there, the company's quarterly revenue only rose by 83%, reaching $177 million. Its shares plunged 86% in that same period, perhaps as a result of its persistent unprofitability. Future cannabis legalization policies advanced in the U.S. and EU may be opportunities that translate into significantly more revenue growth and thus higher share prices. But it's unclear when those catalysts will actually occur, or if they will happen at all.
Furthermore, it has a couple of financial constraints that make its rapid growth less likely outside the context of new markets opening. Its $563 million in debt, while ultimately manageable, requires a lot of cash to service. Over the past 12 months, it repaid $210 million of its long-term debt. Another $280 million will be due for repayment within a year. That's a lot of money that won't be invested in future growth.
The other challenge is that its deep unprofitability isn't going away anytime soon. Even if there isn't a new market to jump into, the business will need to take out even more debt, and perhaps even issue stock to raise capital, thus diluting existing shareholders. So the chances of its stock continuing to rise consistently are close to zero for now.
In sum, don't buy Tilray Brands stock with the hopes of becoming a millionaire. While the company could well prove to be a good investment with time, at the moment it's another unprofitable marijuana stock with big dreams and a big appetite for burning money.
