Tilray Brands (NASDAQ:TLRY) is back to tanking again. TLRY stock reached a near-term peak of $8.56 on March 25 right before when Tilray reported its quarterly earnings on April 6. Now the stock is down to $4.97 or 33.36% lower in one month.
And no wonder the cannabis company is severely burning through cash, as I pointed out in my last article. I pointed out that Tilray Brands (now that it has merged with Aphria) had a free cash outflow last quarter of almost $51 million ($50.96 million). That works out to an annualized run rate of free cash flow (FCF) of negative $204 million, or 8.23% of its total $2.479 billion market capitalization.
That is why TLRY stock has been drifting lower. But it is also down due to fears of an impending or current recession. If people have less money or less work, they will not have the cash to go out and buy cannabis products.
After all, smoking marijuana is a form of entertainment, and that is a luxury activity. It calls itself a “global cannabis-lifestyle” company. But cannabis is not necessary to survive. Here is the point, if the economic slowdown heads into deeper territory expect to see lower cannabis purchases. That will increase cash burn and push TLRY stock down even further.
TLRY Stock Depends on Achieving Positive FCF
The bottom line is unless Tilray can figure out how to get free cash flow positive, don’t expect TLRY stock to rise substantially from here. Unless there is a clear path to huge cash flow, value investors are likely to stay away. This is despite the supposed synergies that Tilray Brands is supposed to have from its merger. So far they haven’t made any difference in terms of its ability to generate positive free cash flow.
Investors will wait to see the upcoming early July release of its fiscal fourth-quarter earnings for the quarter and year ending May 31. Assuming it can start showing positive FCF or even just lower negative FCF, TLRY stock might have a chance at a turnaround. But until then, don’t hold your breath.
On the date of publication, Mark Hake 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.
