Is Tilray's $2B Valuation Just The Beginning? Analyst Sees $10B Market Opportunity, Initiates Coverage

With a $2 billion valuation, Tilray Brands TLRY ranks as the largest cannabis company outside the U.S., leading in international sales and the Canadian recreational market. Pablo Zuanic of Zuanic & Associates has initiated coverage on Tilray with a 'Neutral' rating, highlighting the company's significant potential in global markets.

“In a bull-case scenario, the stock could be near $7 a year from now. On near-term execution and reinvestment risk, we prefer to start at Neutral but are long-term constructive,” Zuanic wrote. “Tilray is focused on building an alcohol drinks ecosystem in the US that it believes could yield revenue synergies in the future with cannabis.”

Zuanic’s analysis projects a strategic premium on Tilray’s diversified cannabis operations.

His financial projections suggest that Tilray’s sales will rise from $784 million in FY24 to $924 million in FY26, with an improvement in earnings per share from -$0.32 in FY24 to -$0.10 in FY26.

Strategic Assets And U.S. Opportunities

Tilray's diversified portfolio includes beverages, wellness products and distribution, which might benefit from U.S. federal legalization.

Despite challenges in acquiring U.S. assets due to federal restrictions, upcoming regulatory changes could provide a strategic window for Tilray.

The company recently announced a $250 million equity offering which might support its U.S. strategy. Tilray has invested in the U.S. market through debt holdings in MedMen, expecting to equitize this investment upon federal permissibility.

International Growth And Valuation

The international medical cannabis market, with a potential $10 billion addressable market, remains a significant growth area. Tilray, with established operations in countries like Portugal, is well-positioned to capitalize on these opportunities. The company's strategic focus could increase its market valuation by several folds, contingent on its ability to maintain a competitive edge and execute its strategy effectively.

Canadian Market Dynamics

In Canada, Tilray maintains its dominance in the recreational market but faces challenges like market saturation and regulatory hurdles. The Canadian market has shown slower growth compared to U.S. states, with stringent marketing regulations and a high excise tax burden impacting profitability.

Stock Performance And Investment Outlook

The analysis shows mixed performance with potential for both upside in international expansion and risks from slow growth or regulatory challenges. Tilray's stock has shown resilience with a modest year-over-year increase, amidst broader market fluctuations. While the current stance is neutral, Tilray's strategic investments in the U.S. market, its diversified portfolio and its strong position in international markets and the Canadian recreational market bolster Zuanic's positive outlook.

“Tilray's U.S. F&B footprint could prove to be synergistic upon federal legalization of cannabis. The stock's peer valuation premium ($2Bn EV), liquidity, significant cash balance, and NASDAQ listing are all key strategic assets,“ said Zuanic.

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The US Alcohol Business And Non-Alcoholic Drinks

Starting with the Sweetwater (craft beer) deal in November 2020, Tilray entered the alcohol beverage space, both as a diversification move and to add future optionality in the event alcohol brands and distribution overlap with recreational cannabis when federally permissible.

Zuanic explains that given the blurring lines between hemp derivatives and THC cannabis, part of these revenue synergies may be garnered before actual legalization in the form of hemp-based drinks.

“With annualized proforma revenues approaching $300 million, factoring in the recent acquisition of eight craft brands from Anheuser-Busch BUD, Tilray aims to become a top 12 beverage alcohol company in the US market and is already the 5th largest craft brewer,” Zuanic wrote. “Importantly, this expansion has bolstered the company’s EBITDA and cash flow base, with management seeing top-line growth potential through innovation, investment, and expanded distribution of these brands.”

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