Irwin Simon, CEO of Tilray (NASDAQ:TLRY), is undoubtedly one of the most outspoken chief executives in North America. However, while Simon is eminently quotable, his latest comments about the state of the cannabis industry might not be great for TLRY stock.
Tilray reported first-quarter 2022 results on Oct. 7. Highlights included a 43% increase in net revenue, $55 million in annual cost savings from the merger with Aphria, the 10th consecutive quarter of positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), and number one market share in Canada (adult-use and medical) and Germany (medical extracts).
What’s not to like? Well, other than the $34.6 million loss and the fact it missed analysts’ estimate of $178 million in the quarter. Not much.
TLRY Stock Falls Despite Healthy Earnings
However, it was Simon’s comments to BNN Bloomberg that probably elicited more of the adverse reaction. TLRY stock is down 6% since.
“If you look at us — Hexo (NASDAQ:HEXO), Canopy Growth (NASDAQ:CGC) and Aurora (NASDAQ:CGC) — all together we have 50% share [of the market],” Simon told BNN Bloomberg. “Underneath that, you have 450 licensed producers that are all ankle biters that are taking a little bit of share away. That’s what we have to contend with and make sure we’re selling our products and educating budtenders.”
So, reading between the lines, the company’s marketing and promotion expenses are headed higher. In Q1 2022, they were $5.47 million, 11% above the same quarter last year.
Ironically, the beer business has gone through the same situation just as craft brewers have taken market share over the past decade. In 2010, craft brewers produced 4.9% of the total volume of beer in the U.S. In 2020, despite falling from the year before, it was 12.3%, 151% growth over a decade.
Now, I don’t think the situation is nearly as dire. The big brewers lost market share because they made products nobody wanted to drink anymore. Tilray and the other three companies controlling half the Canadian market are producing quality products.
In this situation, Simon’s really just saying that it has to keep educating the people selling its stuff. The rest will take care of itself.
Patient Investors Ought to Be Rewarded
Sometimes, writing about stocks is an exercise in frustration. So it certainly is when talking about Tilray.
In late August, the last time I wrote about it, TLRY stock was trading around $13. I said it was an excellent long-term buy under $20 for aggressive investors. Instead, it’s down 20% in the six weeks since my prophetic words.
Even though 14 of the 20 analysts covering Tilray rate it a hold, the average target price is $14.54, suggesting the analysts think it’s got upside potential.
Cantor Fitzgerald analyst Pablo Zuanic has a “buy” rating on the stock and a target price of $18. It’s not the highest target price — that would be $27 — but it’s above the average. Yahoo Finance reported Zuanic’s comments in response to the quarter’s results:
“Looking forward, we see several positives: cost synergies are ahead of plan, the company is innovating across the domestic recreation and medical portfolio, it claims good momentum in the export markets, and M&A will remain part of the story.”
The Bottom Line
Irwin Simon might be too candid for some people’s taste. I find it refreshing.
“My number one priority is to make sure we hold on to our market share today. You have to eat what’s in front of you and not worry about the next meal,” Simon told BNN Bloomberg.
In the end, Simon may end up buying some of the “ankle biters” he spoke of to get to Tilray’s goal of a 30% market share in Canada by the end of 2024.
In the meantime, nothing’s happened since my article in late August that has me reconsidering my recommendation.
If anything, TLRY stock is an even bigger buy for aggressive investors at current prices.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.