TILT Holdings' Cannabis Sales Steady Despite Supply Disruptions, Are Debt And Stock Dilution Posing Risks?

Vape Hardware Business Impacted

TILT Holdings' TLLTF first-quarter 2024 results reveal disruptions in the vape hardware segment, which accounts for 71% of the company's sales in 2023. Pablo Zuanic from Zuanic & Associates notes, "Disruptions on the supply side of the vape hardware business have led to temporarily losing sales opportunities."

Despite these challenges, the custom business remains robust. The company sees growth opportunities in hemp-derived vapes, remaining the largest CCELL distributor in the U.S.

Zuanic highlights "Jupiter’s status as the largest CCELL distributor in the U.S. and CCELL’s status as the leading technology in vape hardware should bode well for the TILT company outlook."

Plant Touching Business Performance

The cannabis plant-touching business, encompassing operations in Massachusetts, Ohio and Pennsylvania, shows stability. "Sales for this unit remain steady despite deflation and increased competition,"  Zuanic explains.

Massachusetts, contributing two-thirds of sales, benefits from the performance of licensed brands like Old Pal. TILT is exploring expansion in PA and Ohio through strategic partnerships and funding agreements.

Debt And Valuation

As of March 2024, TILT's net debt stands at $56 million, a rise from $49 million at year-end 2023. Despite a manageable net debt-to-sales ratio, break-even EBITDA and negative cash flow raise concerns about leverage and potential stock dilution.

"Debt and debt maturities remain of concern to us, especially in the context of lackluster cash flow trends, and increase the risk of stock dilution," Zuanic commented.  However, he notes that "at 0.7x EV/sales we find the valuation attractive."

Stock Performance

Zuanic noted TILT's stock remains illiquid, with less than $10,000 traded daily and has decreased by 25% in the last 90 days. Despite this, he maintains an "Overweight" rating due to the company's market positioning and potential growth in vape hardware and cannabis segments.

"We continue to believe TILT’s valuation is compelling, even though debt and debt maturities are of concern. On a spot EV basis, the stock trades at 0.7x FactSet consensus 2024 sales compared with 1.8x for the MSO average,” Zuanic concluded.

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