Canadian-based cannabis company Tilray Brands (NASDAQ:TLRY) reported its latest earnings numbers last week. Here’s a look at how it did, and if there’s hope for this beaten-down stock to turn things around anytime soon.
For the third quarter, which went up until Feb. 28, Tilray’s net sales totaled a little under $186 million. That was down by 1% from the prior-year period where net revenue totaled more than $188 million. So what was behind this decline?
The big reason for the drop was in its core business, its Canadian cannabis segment. For the quarter, cannabis sales fell from $63.4 million a year ago to just $54.3 million. The company blames the drop on redirecting product from Canada to international markets, and also in pulling back from what it calls “margin dilutive” categories such as vapes and infused pre-rolls. But it says by doing this, it avoided a loss of more than $3 million. In essence, these weren’t good areas for the business to focus on as margins were either minimal or perhaps even negative. Competition has been fierce in the Canadian cannabis industry and that has made it very difficult for companies to stay out of the red.
Tilray’s other segments all did a bit better. Beverage sales showed some minor growth, going from $54.7 million a year ago to $55.9 million. Its distribution business, which includes CC Pharma and its European operations, grew from $56.8 million a year ago to $61.5 million. Its smallest segment, wellness, also went from $13.4 million to $14.1 million.
To make matters worse, Tilray also slashed its guidance recently. Now, for fiscal 2025, it expects full-year revenue to come in between $850 million and $900 million. That’s down from the $950 million to $1 billion it was forecasting just a few months earlier in January. Don’t forget, this comes from the same CEO who once said Tilray would generate $4 billion in sales by 2024. It’s still struggling to get to the $1 billion mark. Cannabis CEOs have often hyped up their businesses far too much, and reality is setting in right now.
In addition to growth, the big concern for Tilray is its rate of cash burn. If the company isn’t able to improve upon this, then dilution remains a serious, ongoing risk for investors. Over the past nine months, the company burned through $81.8 million in cash from its day-to-day operating activities. That’s up from $61.6 million a year ago. Plus, it spent another $60.2 million on capital expenditures, acquisitions, and investing activities. That’s more than $140 million it burned through during three quarters. To prevent a big drop in its cash position, the company raised just under $140 million through the issue of stock. This is a cycle that’s likely going to continue until and unless its financials drastically improve.
The company finished the period with $200 million in cash and cash equivalents. That’s just not enough to fund its high burn rate, and it means that investors should expect to see more stock offerings in the future.
And that’s bad news for investors, because it means that while the stock has been struggling, it doesn’t mean things will get any better. Year to date, the stock is down more than 60%. And over five years, its losses total 93%. To put that into perspective, if you invested $10,000 into the stock five years ago, your investment would be worth just $715 today. It’s an awful return and unfortunately, there really isn’t a reason to expect things will get better anytime soon.
With a Republican government in power in the U.S. and marijuana reform and legalization not on the agenda, it’s not likely that legalization will happen anytime soon. And that’s usually when Tilray’s stock jumps – when there’s some news or renewed hope around the prospects for marijuana legalization in the U.S., as that would open up a huge growth opportunity for Tilray and other Canadian-based marijuana businesses. But that isn’t happening.
The company has been expanding through acquiring craft brewers in the U.S. in recent years but as you can see from the minimal growth that segment generated last quarter, even that catalyst is drying up. Tilray is back to facing some significant growth challenges ahead. And if the business isn’t generating much growth, its burning through cash, and marijuana legalization isn’t on the horizon, there’s really not much of a reason to invest in the stock.