Sentiment For Tilray Stock Should Improve, This Analyst Tells Us Why

Germany is inching toward legalizing recreational cannabis as the government seeks to have the process completed by the end of 2022. The latest push is coming from the country’s Health Ministry which undertook expert hearings on various aspects of the issue with a focus on the best ways to protect young people and consumers’ health.

The move could be a major catalyst for the market, especially for cannabis companies such as Tilray Brands, Inc. TLRY, which has operations in Germany.

Cantor Fitzgerald’s analyst Pablo Zuanic said in his recent note that the sentiment for the company's stock may improve going forward.

“We expect sentiment for the stock to improve in the months ahead on the back of news flow from Germany on the legalization of recreational sales,” Zuanic said.

The Analyst

Zuanic retained a Neutral rating on the company’s stock with a price target of $5.75, down from $6.15.

The Thesis

The company is poised to benefit from being one of only three cannabis licensed manufacturers in Germany.

The Canadian cannabis giant finalized its first harvest of medical cannabis grown in Germany via its subsidiary Aphria RX GmbH in July 2021, several months following the merger with Aphria. 

The company is scheduled to report the fiscal fourth quarter at the end of July. Zuanic tweaked his sales estimates, lowering EBITDA assumptions and saying that Tilray has “become somewhat of a meme stock, in our opinion, with significant volatility to the heavy presence of retail investors.”

Strategic Partnership With HEXO

In the meantime, it remains to be seen how the agreement with HEXO Corp. HEXO will play out.

Earlier this year, the Canadian cannabis giant entered into a strategic partnership with HEXO - a debt financing agreement - under which it agreed to acquire $211 million in senior secured convertible notes that HEXO originally issued to HT Investments MA LLC. In April, Tilray signed a definitive agreement to purchase 100% of the remaining US$193 million outstanding principal balance of the senior secured convertible note.

Last week, that deal was amended to address current stock market conditions and to reduce closing risk.

Zuanic said recently that Tilray could benefit from “HEXO’s travails,” leveraging the current state of the markets and the crisis HEXO is facing to negotiate terms, spend less cash and eventually convert the debt in a 50% equity stake in the company.

TLRY Price Action

Tilray's shares traded 0.2123% higher at $3.5876 per share at the time of writing on Firday.

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