Anyone Considering TLRY Must be High

Someday, somewhere down the road, cannabis will be legal for recreational use in the U.S.

It’s just headed that way.

Here’s the thing – that doesn’t mean cannabis stocks are worth your money.

Especially not now.

Yet, everyone from financial pros to retail is caught up in the latest headlines that suggest Washington wants to reschedule marijuana to a lower level.

Pot stocks shot up like they’d be available at the 7/11 tomorrow.

Nothing could be further from the truth.

Cannabis isn’t legal. And it won’t be for quite a while.

But even if it were, you don’t want to buy Tilray (TLRY).

Here’s why…

Tilray’s Business

Leamington, Canada’s cannabis juggernaut, is more than just frosty bong hits.

Surprisingly, Tilray’s reach extends beyond Canada to Australia and Latin America.

The company merged with Aphria (Ohio-based cannabis company) in 2022 and picked up eight beer and beverage brands from Anheuser Busch in August.

Source: TLRY Investor Relations

Tilray segments its business into the following areas:

• Cannabis Business (42% of total revenues) – Think medical and adult-use cannabis, but with an international flair.
• Distribution Business (28% of total revenues) – Reselling pharmaceutical and wellness products, primarily in Europe.
• Beverage Alcohol Business (9% of total revenues) – Craft beers and spirits brought to you by their U.S. subsidiary, SweetWater Brewing Company.
• Wellness Business (9% of total revenues) – Hemp-based goodness for your health, courtesy of their North American arm, Manitoba Harvest.

Recent quarterly figures were a rollercoaster.

While revenues climbed 7% year-over-year to $184 million, the company missed the mark with a net loss of $0.20 per share. 

Silver lining? They nailed $55 million in cost savings from their merger with Aphria. 

But brace yourselves; the net loss widened to a staggering $899 million due to impairment charges. 

Wall Street’s sentiment was as mixed as a Long Island Iced Tea.

Financials

Source: Stock Analysis

If you’re going to take a flyer on an unprofitable company, they’d better be able to deliver revenue growth.

Yet, sales have stagnated at around $627 million.

While the company turns a gross profit, the SG&A that runs $230 million a year always puts it in the red.

And until the last quarter, Tilray was burning through cash from operations.

How did they pay for the business and their acquisitions?

Share dilution and debt.

Total debt increased from $302 million in 2020 to $590 million today.

Total shares outstanding jumped from 287 million to 657 million during that same period.

Right now, it doesn’t appear that trend is changing anytime soon.

Valuation

Source: Stock Analysis

Take a good look at these valuation metrics.

Which of them screams ‘this is an investible stock?’

TLRY is the only one to generate cash from operations, and it was a paltry $7.2 million for one quarter after losing more than $100 million the quarter before.

Growth

Source: Seeking Alpha

You notice how there are a lot of NM in this list?

That’s because they have no growth to measure.

Even the revenues looking forward are terrible.

Profitability

Source: Seeking Alpha

What’s striking here isn’t that TLRY has the highest gross margin. It’s companies like CGC have a negative gross margin.

With all due respect, how is this possible?  

There are 14-year-old kids that can successfully run this business with just a handful of ziploc bags.

Our Opinion 0/10

Again, we’re not bearish on the industry, just the players.

None of these companies can turn a profit on what is essentially heavily regulated farming.

With the debt levels and no end in sight, it’s only a matter of time before these businesses go bust.

Tilray MAY stave off destruction by becoming a beverage company. But if and when it does, we’ll reevaluate it for that business at that time.