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Tilray Stock Is Worth Buying and Holding If You Have a Little Patience


After trending lower in the past month, Tilray (NASDAQ:TLRY) stock popped on July 28. The reason? Its reporting of results for the recent quarter.

TLRY stock
Source: Jetacom Autofocus / Shutterstock.com

Sure, this may have to do more with its Reddit stock/short-squeeze stock status, but investors may also be taking notice of what’s the stock’s main catalyst for now: the upside from the company’s merger with Aphria, which closed three months ago.

Since the deal close, the combined company has already realized $35 million in cost savings, with more cost savings to follow. Better yet, these aren’t the only benefits to come from the transaction.

Between its plans to increase its market share and opportunities such as infused beverages via its SweetWater unit the company has many avenues to pursue high growth. Whether pot is legalized in the U.S. within the next few years or the timeline remains long and uncertain.

After this recent pop, shares could settle down once again.

As it remains a short-squeeze play popular with the r/WallStreetBets community, it may continue to be volatile, but you may still want to buy it now, ahead of its possible material rise in value over the long term.

TLRY Stock and Its Recent Earnings Release

Tilray may have fallen short of analyst consensus for revenue, but its swing to profitability last quarter (ending June) handily beat estimates. Yes, it was $121.5 million in unrealized convertible debt gains that allowed it to report positive earnings per share.

Yet as mentioned above, cost savings from the recently-closed Aphria deal contributed to its improved numbers. Again, this is just the beginning of this merger paying off for investors.

Add in its other plans, and TLRY stock has plenty that could send it higher. Besides the “meme stock” trends that have sent it on a wild ride so far in 2021.

CEO Irwin Simon discussed some of these other plans on the earnings conference call.

Once Covid-19 enters the rearview mirror, retail cannabis shops in Canada and Europe will be free of stringent lockdown mandates. This will enable the company to get its branded cannabis business back to normal.

Along with its Cannabis 2.0 endeavors, such as the sale of infused beverages, Tilray reasonably could meet its goal of increasing its Canadian market share. It’s at 16% now. But the company wants to get it to 30% by 2024.

These Canada-focused initiatives alone may be enough to send Tilray higher, but the real game-changer is when it’s allowed to fully enter the U.S. marijuana market.

The federal legalization has taken longer than expected, but with the company confident it’s happening within a few years, it may be a clear road ahead to its ambitious 2024 revenue goal.

U.S. Legalization Could Get its Annual Sales up to $4 Billion

Doubling Canadian market share isn’t the only goal Simon discussed with investors. Another notable one is its plans to grow overall sales to $4 billion per year by 2024.

That’s nearly four times the high end of analyst estimates for the upcoming fiscal year (ending June 2022).

Putting it simply, it’s only going to be able to achieve this if it’s able to enter the American market. As I’ve discussed in prior coverage of Tilray, as well as in coverage of other Canada pot stocks, like Sundial Growers (NASDAQ:SNDL), the U.S. pot legalization catalyst right now is still cloudy.

However, Tilray’s head honcho has a more optimistic take on the situation. Simon believes legalization will happen within the next 18-24 months. With its solid cash position ($488.5 million), it could easily enter the market once opened.

Either via directly setting up shop. Or, by buying an existing pot company operating in states where recreational sales are already legal.

Bottom line: legalization may seem uncertain. Yet it may be just a few years away. It’s still something that could change it’s fortunes sooner rather than later.

Tilray Remains a Possible Long-Term Winner

Yes, it’s recent pop may have more to do with “meme stock mania” than with enthusiasm for its recent numbers. This may mean shares pull back once again, but that doesn’t mean you should wait for the Reddit stock trend to wrap up before diving into this pot play.

The benefits of the Aphria merger have only started. Going forward, the combined company will cut costs. Once Covid-19 is in the rearview mirror, it stands to grow its Canadian market share and take advantage of opportunities in areas like infused beverages.

On top of this, there’s a high chance it enters the U.S. market within a few years. In short, its prospects are clearly getting better.

It may remain volatile for now. But in the long run, TLRY stock could climb to levels far above where it trades today (around $15 per share).

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/tlry-stock-is-worth-buying-and-holding-if-you-have-a-little-patience/.

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