The ongoing cannabis stock craze will likely see another move after Monday’s closing bell. That’s when Canadian pot conglomerate Tilray (NASDAQ:TLRY) is slated to report its fourth-quarter numbers, perhaps pushing Tilray stock out of the sideways rut it’s been in since December.
Which direction TLRY ends up moving (if it moves at all) remains in question. While investors will certainly be interested in seeing how much marijuana Tilray sold during the quarter — recreational marijuana in particular, the real scrutiny will be on company has continued to evolve. For Tilray, Q4 was a period to form partnerships and make acquisitions.
The rhetoric about that dealmaking will be the key to overcoming any valuation problems or worries about sustained losses for Tilray stock.
Tilray Earnings Preview
For the quarter ending on December 31st, analysts expect TLRY to report revenue of $15.9 million, although some outside estimates put the figure closer to $18.3 million.
That still won’t be enough to pull the young, budding company out of the red though. Those same pros are also calling for a loss of 15 cents per share of Tilray stock — a modest improvement on the loss of 20 cents per share booked during Q3 of last year.
It is a work in progress, as is the case with all cannabis stocks at this time. Actual net profits may still be a distant goal.
The industry is making progress to that end, however, with some help from much bigger friends.
Constellation Brands (NYSE:STZ) got the pot-partnership ball rolling in August of last year, via a $4 billion investment in Tilray rival Canopy Growth (NYSE:CGC). Altria Group (NYSE:MO) followed suit in December, making a $1.8 billion investment in Cronos Group (NASDAQ:CRON).
Both deals were largely intended to secure a stake in the marijuana market, even without knowing exactly what the future may hold. Though marijuana is now legal in Canada and several U.S. states, it remains illegal at the Federal level in the U.S.
The newly-formed partnerships are aiming to innovate new products.
Tilray Is Moving Slower
Tilray has thus far lagged the innovation and team-up movement. And although the Canadian government legalized cannabis in mid-October, Tilray didn’t actually sell any recreational cannabis during the first two weeks it was allowed to do so.
Tilray has been busy building its team though. Near the end of last year it acquired licensed producer Natura Naturals at a cost of $26.3 million. And, around that same time it inked distribution deals with the pharmaceutical industry, and has agreed to work with Anheuser Busch Inbev (NYSE:BUD) to create and market cannabis-based drinks. In December of last year, the company rounded out its network with a $317 million purchase of Manitoba Harvest.
The Q4 report will be the first to include recreational sales, though it still won’t reflect the full revenue potential of Tilray.
In that light, investors may want to worry less about Q4 numbers and focus more on how it’s piecing together its organization in an increasingly competitive environment.
Looking Ahead for Tilray Stock
The TLRY story is certainly an exciting one, and undoubtedly cannabis has a bright future. But, it remains to be seen if Tilray has a future that’s bright enough to merit its $7.0 billion valuation.
More than a few investors don’t think it does. As of the most recent look, nearly 25% of the stock’s float is held as a short position, meaning nearly four million shares of TLRY are held by traders betting Tilray stock will move lower before it moves higher.
Those bets could backfire in a big way though. Should the response to Monday’s post-close earnings report be a bullish one, a sharp rise in the price of Tilray shares could cause those short-sellers to panic and buy shares to exit their trade, fanning the bullish flames.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.