Tilray Stock Soars Then Returns To Earth On Biden's Cannabis Pardon News, This Analyst Remains Neutral

On the heels of President Biden’s historic announcement that he was pardoning all federal marijuana possession convictions, Cantor Fitzgerald's Pablo Zuanic shared some insight on Canadian cannabis giant Tilray Brands, Inc. TLRY TLRY.

On Friday, Tilray reported its financial results for the first fiscal quarter ended August 31, 2022, with net revenue of $153.2 million, which compares to revenue of $168.02 million for the same period last year.

Like many cannabis stocks, Tilray's soared then leveled off after Biden's surprise announcement. On Friday, the stock dropped 11% at one point after skyrocketing on Thursday.

The Analyst

Zuanic remained Neutral on the company's stock and increased his 12-month price target to $4.50 from $4.15.

The Thesis

Zuanic said his updated estimates are the result of the company’s Friday 1Q23 results. “In particular, we would note cannabis sales coming 7% higher than consensus (CPG was below) on the back of a much better performing domestic rec business. On scale, B/S strength, and infrastructure, management thinks TLRY is well-placed to benefit as various markets legalize rec cannabis (Germany, U.S.) and/or expand medical”

Tilray recently initiated a policy roundtable with German regulators on adult-use cannabis legalization, in which Germany's Drug Commissioner presented a plan for legalization and a bill expected to be presented in the coming months.

“I expect rec sales to begin in Germany by early 2024E, and see that it will be able to supply that market well from its facilities in Portugal and Germany (management noted the latter can be scaled up and adapted for rec sales),” Zuanic said.

In terms of the U.S., “We realize at present cannabis stocks are going to be driven more by sentiment on the U.S. reform outlook (see stock performance yesterday afternoon) than actual fundamentals, but despite profit-taking this morning, we believe sector risks are to the upside. In that context, TLRY should benefit (our Neutral stance is relative within the group; our Neutral rating is based on valuation vs. peers).”

Tilray's Balance Sheet And Global Markets Opportunity

“All-in, with a strong balance sheet ($490Mn in cash), the convertible debt is now under $140Mn, and more than 70% of outstanding debt is fixed rated," Zuanic noted. "In short, management believes it is well-placed to benefit from M&A as various opportunities open up in key global markets.”

TLRY Price Action

On Friday Tilray’s shares closed 18.72% lower at $3.17 per share then dropped slightly after hours to $3.08 per share.