Tilray (NASDAQ:TLRY) stock has been relatively subdued in the last six months. During this period, the stock has declined by 31%. However, TLRY stock had touched a near-term low of $12.7 on July 27. With strong quarterly results, the stock has trended higher to current levels of $16.3.
It seems very likely that TLRY stock has bottomed out. With the completion of the merger with Aphria, the company is positioned for healthy growth. This column will discuss the positive catalysts that are likely to ensure that the stock remains in an uptrend.
Positive industry tailwind is the first reason to remain bullish on the stock. The global cannabis market is still at an early growth stage. Currently, just two of the 196 countries have legalized adult-use cannabis. Further, medicinal cannabis is legalized in 47 countries.
However, there seems to be an increasing possibility of wider legalization of cannabis. This includes the potential for Federal level legalization of cannabis in the United States. It therefore seems to me that the cannabis industry is at an inflection point.
As one of the largest players in the global cannabis market, Tilray is likely to deliver strong growth in the coming years.
Strong Financial Results
On July 28, Tilray reported results for the fourth quarter of 2021 and the numbers didn’t disappoint. Revenue for Q4 2021 increased by 25% to $142.2 million. Furthermore, revenue for 2021 was higher by 27% at $513 million.
It’s likely that healthy top-line growth will sustain. However, I believe that the following two factors are likely to ensure that TLRY stock trends higher.
First and foremost, the company reported adjusted EBITDA of $40.8 million for 2021. This represented a year-on-year growth of 598%. With merger synergies and healthy top-line growth, it’s likely that EBITDA margin will expand in the coming quarters.
Furthermore, Tilray reported cash used in operations of $44.7 million for 2021. For the prior year, cash used in operations was $100.6 million. I believe that Tilray is positioned for positive operating cash flows in the next 12-24 months. This will help in internal financing of growth.
Tilray also ended 2021 with cash and equivalents of $488.5 million. Therefore, there is ample financial flexibility to pursue aggressive expansion.
Global Expansion to Accelerate Growth
Tilray believes that there is a $186 billion global opportunity for legalized cannabis. The company is making inroads in some of the biggest potential markets.
The following factors are likely to ensure that Tilray sustains healthy revenue growth, supported by global expansion.
In January 2020, Tilray exported the first shipment of medicinal cannabis in Israel. Further, in June 2021, the company launched its first medical cannabis brand by the name of Symbios. Recently, the company also announced that it has grown and distributed EU GMP-Certified medical cannabis in Germany. Therefore, Tilray has focus on recreational as well as medicinal cannabis. This expands the total addressable market. At the same time, Tilray has presence in all major European markets and this will help in accelerating growth.
In Canada, Tilray already has a leadership position on the recreational cannabis segment. The company aims to increase retail market share in Canada from 16% to 30% by 2023. In the United States, Tilray expects Federal level legalization in the next 18-24 months. The company already has presence in the U.S. through SweetWater Brewing Company beer and Manitoba Harvest. Legalization in the U.S. is therefore likely to be a big stock upside trigger.
Concluding Views
Tilray expects to deliver $80 million in pre-tax cost synergies within 18 months of merger with Aphria. It’s likely that the combined entity will continue to report EBITDA margin expansion.
Further, Tilray already has presence in Canada, U.S. and Europe. A wide geographic reach positions the company to benefit from the inflection point for the industry.
The cannabis industry will continue to see further consolidation and Tilray has financial flexibility for further acquisitions.
Overall, TLRY stock looks attractive with the best part of revenue, EBITDA and cash flow growth still to come for the company.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
