After a whirlwind of excitement when Canadian cannabis legalization took effect in 2018, marijuana producers are now feeling the strain. Tilray’s (TSX:TLRY) stock price has dropped 50% so far this year and 90% from its all-time high, leaving it with a market cap of just $2.7 billion USD – quite the hit for anyone who invested at that peak time!
The industry is facing intense competition, issues around licensing procedures and black markets providing consumers alternative options have also been negatively impacting players like Tilray who had to invest millions into various related ventures but still saw losses mount up instead of profits as initially expected post-legalization.
Is Tilray a good stock to buy now?
Answering this question is tricky. Tilray’s performance remains hindered by unyielding investment, intensified rivalry, and illicit trades. Consequently, investing in the stock entails a great deal of risk. Nevertheless, with cannabis legalization progressively spreading across North America and Europe there lies an opportunity for Tilray to benefit from these novel markets should they manage to pass through legal protocols and adjust their approach accordingly.
Tilray is making strides to prepare for a possible federal legalization of marijuana in the US, positioning itself as one of the first contenders in what may be an already saturated market. In pursuit of this goal, Tilray has acquired several craft beer manufacturers such as Montauk Brewing and Breckenridge Distillery in 2021 and SweetWater Brewing in 2020 alongside Manitoba Harvest in 2019. These acquisitions allow them greater access into – potentially – America’s largest cannabis marketplace yet.
During Q1 of 2023, Tilray’s alcohol business saw record sales of $20.7 million – representing a 13% portion of total revenue and an impressive 33% rise from the previous year. Although cannabis revenues decreased by 17%, totaling $58.6 million, this shouldn’t be seen as a cause for alarm; rather it should serve to demonstrate how successfully Tilray has been able to diversify its income streams in preparation for when cannabis legalization is passed in America. In other words, thanks to their well-established distribution network across the U.S., they are set up perfectly for success once the law changes!
What next for TLRY stock and investors in 2023?
Tilray’s not only targeting North America but also expanding its presence in Europe, specifically Germany. Already dominating the German medical cannabis market, Tilray raked in $10.4 million in revenue during fiscal Q1 of 2023 – a number that is projected to skyrocket with the country planning on legalizing marijuana for recreational use by 2024! This will open up many doors and provide immense opportunities for Tilray to maximize sales growth from this region.
Tilray has the potential to benefit from a burgeoning European Cannabis market, with estimates suggesting that sales could reach $3.9 billion by 2025. Multiple expansion opportunities exist in this timespan however, for Tilray to gain back investor trust and unlock its true value it must first take steps towards improving their balance sheet; an important part of any successful turnaround strategy.
Heather Hachigian works as a research associate at the Carleton Centre for Community Innovation and as a consultant with Purpose Capital, where she helps investors identify opportunities and strategies for implementing their responsible investment programs.