For the past year, Tilray (NASDAQ:TLRY) stock pulled off an impressive bull run. The shares have gone from $9 to $17 – bringing the market capitalization to $3 billion.
But of course, in February TLRY stock went parabolic, as Reddit traders got interested in the shares along with a group of other names like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). The high was $67. A big catalyst was the election of President Joe Biden.
But as things have cooled off, what now for TLRY stock? Is now a good time for a buy? Well, I think so. Tilray does look poised to benefit from the secular trends in the industry.
Let’s take a look.
The Advantages
Perhaps the most important catalyst for Tilray is the transformative merger with rival, Aphria (NASDAQ:APHA). The deal was announced in mid-December.
The current CEO of Aphria, Irwin Simon, will become the CEO of the new entity (which will be called Tilray). This is certainly good news. Keep in mind that Simon has more than three decades of business experience. For example, he founded Hain Celestial Group (NASDAQ:HAIN), which is a leader in organic and natural products. The revenues are over $3 billion.
Now of course, the deal will provide substantial cost synergies because of the duplications across the two organizations. The estimate is for 100 million CAD within two years.
Yet there have already been cut backs by Tilray and Aphria. The companies have had to streamline their organizations as the Canadian market has gotten more competitive.
Now another key factor for this deal is the scale. To remain competitive in the cannabis industry, there needs to be a cost advantage. There also needs to be a portfolio of premium brands.
And yes, as for the new Tilray, it will have all this. The deal will result in a company that has the leading market share in the Canadian market. As for the brands, there will be plenty of top ones like Riff, Good Supply, B!ngo, Solei, Grail, Dubon, Canaca and The Batch.
The new Tilray will also be a diversified business. Note that the medical segment offers considerable potential growth in the years ahead. For example, Aphria has a substantial presence in the German market, where there is distribution across over 13,000 pharmacies. Regarding Tilray, it has a strong medical business in Portugal. The company operates a 2.7 million square foot EU-GMP low-coast cultivation and production facility.
Then what about the U.S. market? It certainly represents an enormous opportunity, although investors should still tamper expectations. While the Biden administration will likely be favorable to the cannabis industry, the fact is that the focus is primarily on dealing with the pandemic and the infrastructure bill.
Yet despite this, it does seem like there will ultimately be some form of legalization in the U.S. After all, many states have already passed favorable cannabis laws.
As for the new Tilray, it should be positioned to benefit. Consider that it has a variety of assets that can be leveraged in the U.S., such as SweetWater Brewing (a craft beer manufacturer and distributor) that has a presence in 27 states. Then there is U.S. Hemp and Wellness. It currently has a distribution in about 17,000 stores.
Bottom Line On TLRY Stock
All in all, the cannabis space is likely to remain volatile. But the long-term prospects do look bright. According to analysis from BDSA, the market is expected to reach $55.9 billion by 2026 – for a compound annual growth rate of 17%.
But when investing in this category, it seems like the best approach is to focus on top operators that have scale. And the new Tilray will certainly be among this group.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
