Tilray Stock Upside Hopes Pinned On Marijuana Bill

  • Tilray (TLRY) stock is trending higher on hopes of marijuana legalization in the United States
  • The company has focus on recreational as well as medicinal cannabis with presence in high-growth markets
  • The stock is worth considering for long-term investors as the addressable market is significant and top-line growth is likely to accelerate
Closeup of mobile phone screen with logo lettering of cannabinoid company tilray cannabis, blurred marijuana and pipette background
Source: Ralf Liebhold / Shutterstock.com

After touching lows of $4.78 earlier this month, Tilray (NASDAQ:TLRY) stock has surged to current levels of $8.6. A strong reversal rally has been triggered by fresh hopes of legalization of marijuana in the United States.

I believe that TLRY stock is worth considering even after the recent rally. It seems very likely that the marijuana bill will be cleared. This will set stage for a phase of robust growth for major cannabis players in the United States.

One reason for holding the view that the marijuana bill will be passed is the fiscal situation in the U.S. Policymakers need incremental sources of taxation. Some good opportunities include legalization of online gambling and betting (already happening) and the legalization of cannabis.

Another reason to be bullish on legalization is the advancement in medicinal cannabis. While there are medicinal cannabis brands in the market, it’s not backed by evidence. Legalization is likely to help in accelerating clinical trials and boosting the pipeline for evidence backed medicine.

Let’s also look at company specific factors that point to Tilray stock trending higher after a sustained downturn.

TLRY Tilray $8.6

A Deeper Look into the Company’s Results

Tilray had reported second-quarter 2022 results in January. There are few points beyond the headline numbers that are worth discussing.

The first point to note is that for Q2 2022, the total revenue was $155.2 million. However, cannabis revenue was just 42% of the total revenue. The company’s distribution revenue constituted 57% of the total revenue.

Within the cannabis segment, 78% of the revenue was from Canada (medicinal and recreational). However, in Q2 2021, the revenue from Canada as a percent of total cannabis revenue was 92%.

The important point to note is that in the last 12-months, Tilray has diversified from a geographical perspective. International revenues are likely to be the key growth driver. Legalization in the U.S. will significantly accelerate the international revenue stream.

It’s worth mentioning here that in August 2021, Tilray’s CEO had shared a revenue plan of $4 billion by 2024. The CEO believes that international expansion, U.S. markets and the wellness segment are key growth drivers.

Tilray seems to be moving in the right direction. Wellness revenue was $13.8 million for Q2 2022. In the prior year comparable quarter, there was no revenue from the wellness segment.

Focus on Medicinal Cannabis

Tilray is also betting big on the medicinal cannabis segment. The company already has a GMP-certified cannabis production facility in Canada, Poland and Germany. Recently, the company has launched its medical product offering in Australia and Malta.

Through 2027, the global medicinal cannabis market is expected to grow at a CAGR of 22.9%. The market size is expected to reach $46.18 billion by 2027. This presents a big addressable market and Tilray is among the leading players in the segment.

I mentioned earlier about evidence backed medicinal cannabis. The company’s medicinal cannabis product has shown positive results in reducing nausea and vomiting caused by chemotherapy. The company is also supporting clinical trials to treat patients suffering from alcohol use disorder.

There are several other clinical trials initiated by Tilray. The key point is that once these trials advance and results are positive, the impact on growth can be significant.

TLRY Stock Worth Buying for the Long-Term

Through organic growth and acquisitions, Tilray has created a portfolio of brands for recreational and cannabis use. Regulatory headwinds remain a key concern for the industry. However, there seems to be hope on that front and Tilray is positioned to benefit once the addressable market expands.

Coming back to financials, Tilray has reported eleven consecutive quarters of positive adjusted EBITDA. However, I expect free cash flows to remain negative as the company expands into new markets. TLRY stock would trend higher on revenue growth acceleration even if cash burn sustains.

Overall, Tilray is among the top cannabis companies globally after the merger with Aphria. TLRY stock is worth holding for the long-term as the company stands to benefit from a growing market for legal marijuana.

On the date of publication, Faisal Humayun did not hold (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.

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.


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