Around $35, Tilray Stock Is a Buy

It’s hard to believe, but the 52-week high for Tilray (NASDAQ:TLRY) is $300. TLRY reached its nose-bleed valuation last October. Except for a couple of rallies, it’s been downhill ever since.

Around $35, Tilray Stock Is a Buy
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Trading around $42 as I write this, I still wouldn’t buy it. However, if Tilray stock were to fall into the mid-$30s, I’d probably change my tune. Here’s why. 

The Latest Tilray News

For Tilray stock to move higher, like any other investment, it’s got to provide investors with a catalyst or two. 

The last catalyst TLRY provided was the June 10 announcement that it had extended the lock-up period for up to two years on 77% of its total outstanding shares. By providing an orderly release of 75 million TLRY shares, formerly held by Privateer Holdings, Tilray’s minority shareholders can breathe a sigh of relief that the market won’t be flooded with company stock.

Between June 10 and June 21, TLRY stock moved 17% higher on the news — to $50.45 — only to fall back into the low $40s in July on the lack of a catalyst. 

As I look around for a nugget of information that might excite investors, the only thing I can come up with is the appointment of five executives for the company’s European operations on July 5.    

“Having strong people on our team is critical to our success and growth,” said Sascha Mielcarek, Tilray’s managing director of Europe, about the five executives hired. “We’re thrilled to welcome this group of highly skilled leaders to our team. Arne, José, Maike, Nadja and Natalie all join Tilray with wide-ranging experience in regulated industries. We’re confident their appointments will accelerate our global growth strategy and help strengthen our position in Europe and other international markets.”   

Portugal will serve as the company’s hub of operations in Europe. 

In April, the company launched its $20 million, 250,000-square-foot facility in Cantanhede, Portugal. As part of the ribbon-cutting ceremony, the company showed off its new facility to local government officials and Canadian healthcare professionals. The tour came on the heels of a successful indoor harvest at the facility. 

It now plans to hire 200 employees for the facility, which produces pharmaceutical-grade medical cannabis. Portugal looks to become one of the leaders in the European medical market, which is expected to hit $65.6 billion by 2028.

Although Italy and Germany are easily the two largest medical markets in Europe, Portugal is likely to punch above its weight as the European cannabis industry continues to mature. Having several executives in place who understand the regulatory nature of cannabis will be helpful as Tilray stakes out its piece of the global marketplace. 

It’s not news that Philip Morris (NYSE:PM) is investing in Tilray, but it is crucial to the company’s development in Europe. 

The Company’s Cultivation Record

I’m not as concerned about how much cannabis Tileay produces as I am about the kinds of products it’s got in the development pipeline. As I said in June, the company’s purchase of Manitoba Harvest for $316 million, wasn’t a flashy deal, but it got Tilray into the CBD-infused foods market in North America, which is going to be huge. 

It’s the quality of Tilray’s partnerships that matter, not necessarily the cultivation numbers at the present moment. 

Having a research partnership with Anheuser-Busch (NYSE:BUD) that could lead to the production of cannabis-infused beverages is more important at this point than the total number of kilograms of cannabis it’s sold to date.

My InvestorPlace colleague Luke Lango recently pointed out that Tilray sold only 3,000 kilograms of cannabis in the latest quarter, one-third the amount of both Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB). 

While that’s true, I still believe that the dry flower isn’t going to be the major winner in a global cannabis industry; the winners are going to be edibles and cannabis-infused beverages with the dry flower commoditized to a certain extent. 

Maybe I’ll be proven wrong, but I don’t think so. Lagging behind Canopy and Aurora isn’t the death knell for Tilray. 

The Bottom Line on TLRY Stock

As we’ve moved further into 2019, I’ve become more positive about Tilray’s chances of becoming a global player in the cannabis space. I wouldn’t have said that a year ago. 

As a CEO, Brendan Kennedy seems far more focused on the bigger picture while remaining patient about the speed at which Tilray grows. That’s fantastic news if you own Tilray stock.

However, I still feel as though Tilray hasn’t earned enough street cred to be valued higher than Canopy or Aurora based on price-to-sales, price-to-book, or some other metric that’s an apples-to-apples comparison. 

If it drops to $35, I’ll change my tune.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

 


Article printed from InvestorPlace Media, https://investorplace.com/2019/07/around-35-tilray-stock-buy/.

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