What To Focus On Now After Tilray's Q3 Earnings Report, Analyst Shares Main Takeaways

On Wednesday, Tilray Brands, Inc. TLRY reported financial results for the third fiscal quarter ended Feb. 28, 2022, with net revenue up 23% from the same quarter last year, reaching $152 million.

Irwin D. Simon, the company's chairman and CEO who will be delivering a keynote at the Benzinga Cannabis Capital Conference, to be held April 20-21 in Miami Beach, said that quarterly results "reflect progress and momentum across all of our key business segments and geographies, setting the stage to achieve our target for $4B in revenue by the end of fiscal 2024.

"Tilray Medical – which now operates under a cohesive strategy and mission – has a near 20% share in Germany, providing clear benefits in its own right as well as a first-mover advantage that we will leverage as Germany and the EU move towards broader adult-use and medical use legalization," Simon said.

In February, the company announced the launch of Tilray Medical, a global medical platform that consolidates its medical cannabis brands under one strategy, mission and vision.

During the third quarter, the company also saw significant growth in international cannabis, with revenue up over 4,000% from the prior year's quarter and a 37% increase in revenue in EMEA when compared to the previous quarter.

Cantor Fitzgerald's analyst Pablo Zuanic said that the "continued strength in the international business," which accounts for 29% of cannabis sales and probably close to half of the gross profits, was "the main takeaway" from the quarter.

The Analyst

The analyst maintained a Neutral rating on the company's stock but increased the 12-month price target to $8.40 from $6.90, despite lowering estimates and given the stock's recent re-rating, which was driven by US news flow.

Sales Analysis

Sales for the recreational unit and medical fell sequentially by 12% and 11%, respectively.

Zuanic said that the loss in recreational sales can be attributed to the flower segment, "mostly due to an oversupplied market."

International sales amounted to nearly $16 million, up by 15% quarter over quarter and over 50% year-over-year.

"We realize the domestic business is going through a transition, but international was certainly the bright spot this qtr," the analyst noted.

New Frontiers

Overall the company is present in 20 markets.

In Germany, where it claims 20% of the total market share, Tilray's pharma distribution unit saw a sales fall of 9% sequentially to $62 million, while wellness revenue (hemp food) was up 6%.

"We expect the growth momentum to continue, although shipments to Israel may be more volatile" on a sequential basis, Zuanic said.

Management believes that in the course of the next two years, Europe will see significant regulatory change, he added.

CPG Momentum

Net alcohol revenues increased to $20 million from $14 million quarter-over-quarter due to the acquisition of Breckenridge Distillery – a deal that was closed in early December, as well as new distribution gains for beer.

Moreover, the company's management believes that its CPG  brands, including beer, liquor and hemp food, as well as its distribution channels, could be leveraged in the US in the future once THC is legalized in the country.

The company also reported that adjusted EBITDA fell sequentially to $10 million from $14 million, with margins down 330bp to 6.6%.

"Of we assume 35% for alcohol, hemp food at 15%, and distribution at 2%, then this would mean negative EBITDA margins in the cannabis unit," Zuanic explained.

Outlook

The company said that a goal of $4 billion in sales by the end of fiscal 2024 would be driven by the Canadian cannabis unit, which is projected to get more than $10 billion, international operations which would contribute $1 billion, US cannabis and CPG sales.

Zuanic concluded with a thought that Tilray "has become somewhat of a meme stock, with significant volatility (driven by news flow about US legalization) caused by the heavy presence of retail investors."

The company's stock saw high interest from retail investors in late March on the heels of news that the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act would end up on the House floor.

Price Action

Tilray's shares traded 1.79% lower at $7.12 per share during the pre-market session on Thursday morning.

Photo: Courtesy of Maxim Hopman on Unsplash