Tilray Inc

Tilray Inc (Nasdaq: TLRY) is a cannabis-lifestyle and consumer packaged goods. It provides over 20 brands with operations in the United States, Canada, Latin America, Australia, and Europe.

Investment Highlights – SELL at USD 16.31

• The Company has limited operating history and may not be able to maintain profitability in the future given the supply interruptions and operational difficulties.
• Tilray still reports losses on an annual basis, and it is still in the early stage of integrating Tilray and Aphria's operations. Therefore, it may fail to achieve the anticipated benefits if there is any unfavourable change in the government regulations.
• Over the past six months, TLRY’s stock price has plunged over 14%, showing significant underperformance against the ~33% return of the benchmark Nasdaq index.
• From a technical standpoint, TLRY’s stock price is trading below the 50-day EMA (USD 16.43) and 100-day EMA, reflecting a bearish price momentum. Moreover, MACD line is hovering below the centerline and not giving a clear positive crossover against the signal line. With recent surge in price, 14-day RSI is also moving towards the overbought zone. Therefore, price retracement can be anticipated in the short-term.

Key Risks

• Subdued economic activity amid the Covid-19 pandemic induced restrictions can impact the Company’s ability to generate revenue and conduct operations effectively.
• A decrease in the average selling price per gram of cannabis due to increased competitive pricing in the adult-use segment can continue to impact the revenues.

Financial Highlights for the year ended 31 May 2021 (as on 28 July 2021)

 (Source: Company Website)

• During FY21, Tilray’s net revenue surged 27% year-on-year despite the Covid-19 restrictions.
• In Q4 FY21, the Company reported net income and adjusted EBITDA of US$33.6 Million and US$12.3 Million, respectively.
• As the Company’s cannabis revenue surged 55% in Q4 FY21, it has the largest market share in Canada now.
• In Q4 FY21, free cash flow jumped 112% year-on-year to US$3.3 million.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative)

Conclusion

The long-term legalization of adult-use cannabis is still uncertain, which can adversely impact the Company’s medical cannabis business. Moreover, the US regulations pertinent to hemp-derived CBD (Cannabidiol) products are rapidly evolving and unclear, which may not move in tandem with the Company’s expected growth trajectory. In a nutshell, business growth depends upon regulatory approvals and compliance. Meanwhile, significant interruptions to the supply chain amid a resurgence in Covid-19 cases due to Delta variant and high raw-material cost could hurt the Company’s profitability and cash flows. The stock made a 52-week High and Low of USD 67.00 and USD 4.41, respectively.

Based on the volatile market conditions, macroeconomic instabilities, lossmaking history, limited operating past, regulatory concerns over CBD market, and unfavourable valuation conducted above, we have given a "SELL" stance on Tilray Inc at the current market price of USD 16.31 (as of 29 July 2021, at 9:45 AM ET), while we look to fresh buying when short-term uncertainty fades away.  

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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