This year looks to be another underwhelming one for Tilray Brands (TLRY 1.71%) investors. The company continues to incur losses, and there are no significant changes coming to Canada's pot market next year, which could improve its prospects for profitability.
But 2024 may not be so gloomy for Tilray stock. Here's how I see next year playing out for this beaten-down pot stock.
1. Tilray Brands stock will generate positive returns in 2024
Pot stocks haven't been great investments in recent years. Between inflation and too much competition, particularly in the Canadian cannabis market, the result has been a brutal landscape with poor margins that have made it difficult for companies to prosper.
I don't expect the level of competitiveness to lessen. But I do expect there to be more excitement toward the latter half of 2024 -- an election year in the U.S. -- and that means it would be an opportunistic time for marijuana legalization to enter the discussion again. It's a potential election issue, which is why I anticipate it could be an advantageous time for politicians to bring it up again. And as that happens, it could build up excitement around pot stocks. If nothing else, it could help shine a light on Tilray and other beaten-down pot stocks, which may persuade investors to take a chance on them.
Tilray shares are down more than 30% this year after already seeing its valuation collapse by 62% last year. And it was down 15% the year before that. The last time Tilray's stock was in positive territory was -- you guessed it -- the 2020 election year, when it rose by 33%.
2. It will pursue more acquisitions outside of the cannabis industry
Tilray is in the cannabis business, but it has been diversifying outside of it. That has helped improve its financials. It's a pattern I've seen with other Canadian cannabis companies: The more they diversify outside the industry, the better their results. This goes back to the problem of intense competition and compressed margins. By focusing on other industries, these companies can improve their bottom lines while also growing their sales.
Earlier this year, Tilray bought eight beverage brands from Anheuser-Busch InBev. Through the deal, Tilray has been able to become a top-five craft brewer in the U.S.
Whether it focuses on beverages or some other adjacent business, I expect Tilray will still be active in mergers and acquisitions next year; it still needs ways to find way to boost its top line. Last quarter, for the period ended Aug. 31, Tilray's revenue totaled $176.9 million, which was up 15% year over year. The company's cannabis and distribution businesses each accounted for 39% of total revenue, followed by beverage and alcohol at 14% and wellness at 8%. And at 53% gross margins, the beverage business is much more lucrative than any other segment -- no other business unit generates margins of even 30%. Tilray's cannabis operations report gross margins of just 28%.
Diversifying outside of cannabis can be a great way for Tilray to become a more investable business.
3. It will post at least one quarterly profit
Over the past few years, Tilray's bottom line has fluctuated, largely due to impairment write downs and changes in asset valuations. But the company has been showing improvement lately, and I expect that as its operations tilt more toward beverages, it should get closer to breaking even.
Data sourcer: YCharts.
Tilray has squeaked out profitable quarters in the past, and I expect it to get back into the black at least once next year.
Does all this make Tilray a good stock to buy?
If you're considering investing in Tilray stock, you need to have a high risk tolerance. The stock's wild swings and the uncertainty in the cannabis industry make this an investment that isn't suitable for most investors; it's not a stock I would buy, given its unpredictability. While I expect it to do well in 2024, that doesn't mean I think it's a safe stock or that it won't continue struggling in years to come.
Unless you're prepared to take on a big risk with the business, you may still be better off taking a wait-and-see approach with the stock. That will give you time to assess that it is indeed focusing more on its expansion into other industries and that its financials are continuing to improve.
