The past five years have been terrible for Tilray (TLRY 3.42%). The cannabis grower has delivered inconsistent financial results in a market that seems to be going nowhere. Tilray's shares are down by 80% in the last half a decade. However, that alone doesn't mean it's not worth buying Tilray's shares. If the company can find a way to bounce back, investing right now could deliver outsized results in the years ahead. How will things develop for Tilray in the next year? Let's find out.
The situation north of the border
Tilray does extensive business in Canada, one of the few developed countries where recreational, adult uses of cannabis are legal. However, the Canadian cannabis market has been a mess. It's been difficult for companies to obtain retail licenses, the competition has been fierce, and illegal channels are still eating up sales that would otherwise go to legal, well-established companies. Tilray has made some progress despite these challenges, mainly due to acquisitions. It now stands as the leader in the cannabis space in Canada by market share.
NASDAQ: TLRY
Key Data Points
How will things develop in the next 12 months in Canada? It's hard to imagine that things will improve meaningfully for the whole of the market or that Tilray's position in the Canadian cannabis market will change substantially, though it could engage in more mergers and acquisitions (M&A) activity. For the most part, investors should expect more of what we have seen over the past few years: extremely challenging conditions for cannabis players, making it difficult for even the leaders to turn in consistently good financial performances. Thankfully for Tilray, there are positive developments taking place in other countries, and the company is looking to pounce on these opportunities.
Exciting regulatory developments
Tilray has made several moves to get around the challenging Canadian market. Most notably, it established itself as a leader in Germany, where it holds the top position among cannabis companies. Tilray did so partly because it anticipated positive regulatory developments in the country. The pot grower's strategy recently paid off, with Germany making (some limited) adult use of cannabis legal. According to the company, the move opened up a $3 billion opportunity.
Few are in a better position to benefit than Tilray. However, the company did not forget about the U.S. Tilray has been making a play in the beverage market. A recent acquisition transformed Tilray into the fifth-largest craft brewer in the country. The company plans to pounce when the country legalizes cannabis at the federal level. If that does happen, Tilray will already have operations in place to profit from the potentially lucrative market for cannabis-infused drinks.
How will these initiatives develop in the next year? The German market seems promising, but one thing investors learned from the Canadian experience is that even if a country decides to legalize adult uses of cannabis, that doesn't guarantee the industry will be a massive success. There was already a soaring black market for weed in Germany. Unless the new law makes it attractive for users to switch to legal channels, chances are much of the sale and activity will remain underground.
The new laws in Germany don't exactly make things easy. There will be no retail stores per se. Those who want cannabis will have to grow it themselves or join a cannabis club (adults can join a grand total of precisely one). These clubs must adhere to strict rules. Individuals who grow the substance at home are strictly forbidden from giving it to others, even for free. Those are just a few of the rules. Is going through all that easier than obtaining weed illegally like many have been doing for years in the country?
Only time will tell what cannabis users in Germany choose to do. In my view, this market won't contribute much to Tilray in the next year, nor will there be legalization at the federal level in the U.S. Though various regulatory developments could jolt the stock, don't expect (organic) financial results to improve substantially.
Is Tilray stock a buy?
During its latest quarter, the third of its fiscal year 2024, ending on Feb. 29, Tilray reported revenue of $188 million, 30% higher than the year-ago period. But most of that growth was due to acquisition. Furthermore, Tilray remains unprofitable. Its net-loss per share for the quarter came in at $0.12, although that was much better than the net loss of $1.90 reported in the year-ago period. The market was hardly impressed by Tilray's performance. That will almost certainly continue through the next 12 months.
Neither Tilray nor the broader cannabis industry has shown signs of being able to reverse the ugly trends investors have experienced over the past few years. That's why it's best to stay away from the stock.
