Even among marijuana stocks. a volatile bunch, Tilray (NASDAQ:TLRY) has been the ultimate roller coaster. Tilray stock IPOed in the U.S. last August at $17 per share. \
By the beginning of September, TLRY stock price was crossing $50 per share. Incredibly, over the next two weeks, it spiked to as much as $300 per share. Since then, it’s been all downhill. TLRY stock fell back to $100 in October. It slid to around $75 by year-end. In April, Tilray stock crossed the $50 mark, and it’s now fallen under $45.
Can anything stop Tilray’s slide? The main issue, at least at this point, has been that Tilray’s business execution has been extremely lackluster. Sure, the $300 peak price for Tilray stock was crazy. But Tilray stock need not have crashed quite this far.
Tilray’s Earnings Report
Some TLRY stock bulls looked at its first-quarter earnings report as a positive. Tilray stock rose for a short time following the release.
It’s not hard to see why. Its revenues surged from $7.8 million in Q1 of 2018 to $23 million last quarter. That was well ahead of expectations; analysts, on average, were expecting closer to $20 million. On the income side, the company’s losses widened, and they were not better than the consensus outlook. But like so many marijuana companies, TLRY’s focus is on scaling up its revenues for the time being.
But this report was underwhelming in other ways. The annualized revenue rate was around $100 million, which still leaves Tilray stock trading at an exorbitant price/sales ratio. And much of the revenue growth came from non-organic growth after Manitoba Harvest, which TLRY acquired in February, began contributing to Tilray’s results. Further, it’s worth looking at the company’s whole business, as not everything is booming. Its medical marijuana sales, for example, were merely flat year over year.
Losing Its Leadership Position
The earnings report was hardly a home run. In fact, it shows just how far Tilray’s star has fallen. The company now has low-to-mid-single-digit-percentage- market share in the Canadian recreational space. That puts it outside of Canada’s top five players.
Less than a year ago, TLRY was duking it out with Canopy Growth (NYSE:CGC) for the largest market cap among marijuana stocks. Now TLRY stock price has shriveled, and it has failed to turn last year’s excitement into a leading position in the Canadian pot market.
Importantly, Tilray failed to lock in a key partnership with a big backer from the alcohol or tobacco industries. This has given rivals like Canopy and Cronos (NASDAQ:CRON), which did make such deals, a big advantage compared with Tilray.
TLRY did sign a deal with Novartis (NYSE:NVS) to collaborate globally on medical marijuana distribution. This partnership, signed late last year, is certainly better than nothing. But it’s a far cry from the large equity cash infusions and distribution deals that other, bigger players have been able to obtain.
Slower Progress by Design?
Earlier this year, TLRY CEO Brendan Kennedy made some interesting comments. He said on the company’s Q4 earnings conference call that: “We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.” That’s a reasonable position. Supply has already exceeded demand in some legal markets in the United States. And in the long run, there’s little to constrain the output of commodity marijuana producers.
Still, however, the owners of Tilray stock are going to demand more progress. People need Tilray to grow rapidly before they can get excited about TLRY stock again. So far, the company hasn’t done enough to stand out from the pack.
The Verdict on Tilray Stock
Tilray’s major shareholder, Privateer Holdings, announced earlier this year that it wouldn’t sell any TLRY stock in the first half of 2019. That was huge news, as Privateer holds 75 million shares of Tilray stock. Even with the bad performance of Tilray stock lately, that stake is still worth more than $3 billion. But it was worth more than $12 billion at one point.
How long will Privateer, which owns the majority of Tilray, be willing to watch its stake keep shriveling away? It said it wouldn’t sell any stock in the first half of 2019, but that limitation expires in less than two months. If Privateer starts selling shares, TLRY stock price could fall much lower.
As it is, the company’s last earnings report showed real progress. But it also showed just how far away Tilray is from being a leading marijuana company at the moment. The company has to do far more to justify even a $50 share price, let alone its former highs.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.