What Will Drive Tilray's Stock Performance? Analyst's Thoughts On Canada's Largest Cannabis LPs

Tilray, Inc. TLRY reported its financial results this past Thursday for the first fiscal quarter of 2021, including a 43% increase in revenue that amounted to $168 million, 

positioning the company on a $670 million annualized sales run rate.

Management shaped a $4 billion revenue vision for a "cannabis-focused consumer brands company" within the next three years.

"There is nothing wrong with Tilray management articulating a $4Bn top-line vision by 2024 (6x current levels)," Cantor Fitzgerlad's analyst Pablo Zuanic said in his latest note, even though the company's present balance sheet can't "back that up," with net debt being 0.7x 2021 fiscal year sales, and 7x fiscal year 21 EBITDA.

The Analyst

Zuanic downgraded Tilray's stock rating to Neutral from Overweight while cutting the price target to $11.80 from $18.

Investment Thesis

Taking into account that large-cap Canadian LPs, such as Tilray and Canopy Growth Corporation CGC WEED are momentum stocks and substantially driven by expectations based on US federal reform, it's hard to make an "investment case for them based on fundamentals vs. valuations," the analyst said, adding that he expects "positive news on that front, at the earliest, by late 2022."

See also: Aurora Beats Tilray As Best Performer Among Canadian Cannabis LPs In October As Stocks Plunge 9.5%

Zuanic calculated that "Tilray's cannabis business is valued at 13x our CY22 cannabis sales estimate, as compared with 12x for Canopy Growth."

And since the analyst rates Canopy Growth at Neutral as well, he opted to downgrade Tilray's stock rating in order "to be consistent," arguing that the Smith Falls, Ontario-based cannabis giant is ahead of Tilray in terms of "building a US ecosystem," having a stronger balance sheet as well as reinforcement coming from Constellation Brands and Canopy's CPG unit, including acquired business such as BioSteel.

Canadian LPs As The Next Coca-Cola And Philip Morrises Of The Global Cannabis Industry

In the meantime, it seems that Canadian LPs are here for the long run. Having visionary leaders and proper corporate governance policies that will attract institutional investors is what it takes for them to execute on a global growth strategy, the analyst said, highlighting that "Tilray has such a leader in chairman and CEO Irwin Simon.

"Unlike their US counterparts, Canadian LPs are not landlocked, have access to the capital markets, do not rely on a protectionist license-restrictive system, and are testing their mettle in a competitive, federally legal, three-tier market with inter-province trade," Zuanic explained.

Price Action

Tilray’s shares traded 0.10% higher at $10.31 per share during the pre-market session on Monday morning.

Photo: Courtesy of John Schnobrich on Unsplash