Consumer Products

Why to Keep an Eye on Tilray Stock

The stress of quarantine lockdown may be enough to drive a person to drink or drugs. Scientists are just starting to study whether drug use has gone up during the coronavirus pandemic.

So it’s too soon to tell what impact COVID-19 will have on legal and medical cannabis companies such as Canada’s Tilray Inc. (NASDAQ: TLRY). But analysts will be watching the company’s next earnings report, due May 11, for clues. Most expect marijuana stocks to remain volatile in the near term.

Tilray stock was up 5.23% in the last month, but is down over 57% year to date. This downward trend has attracted short sellers. And access to cash remains a concern.

Legalization Trends

As more U.S. states and foreign countries move to legalize recreational or medical cannabis products, legal investment options will grow. But nascent industries come with volatility. Tilray’s 52-week range spans from $2.43 to $51.03, with the stock currently trading in the $7 to $8 range.

Observers are closely watching the Canadian cannabis experiment. The country legalized recreational use in October 2018. Uruguay is the only other country to legalize the sale of recreational pot so far, though a few others have legalized its use.

Some cannabis industry executives actually think the current economic crisis could benefit them in the long run. They point out that alcohol prohibition ended quickly after the Great Depression, as the federal government badly needed revenue and job growth. Legalized marijuana taxes could be a tempting proposition for states (and maybe even Washington?) staring at empty coffers.

On the flip side, legalization efforts may be stymied by legislatures overwhelmed with other priorities. Grassroots efforts requiring the mass collection of voter signatures obviously face an uphill battle in the age of social distancing.

Recreational marijuana is currently legal in 11 states. A few other jurisdictions only loosely enforce their prohibition laws. Medical use is approved in 33 states.

Several states are expected to have some form of legalization referendums on their November ballots. And presumed Democratic presidential nominee Joe Biden this week said he would move to “decriminalize the use of cannabis and automatically expunge all prior cannabis use convictions.” It’s a step short of national legalization, but still a positive step for marijuana advocates.

Earnings Report

Investors will be looking for a revenue increase at Tilray, and hopefully a move toward profitability. The company said that it had a net loss of $0.62 per share and $46.94 million in revenue in the fourth quarter, compared with consensus estimates that called for a net loss of $0.35 per share and $55.38 million in revenue. The fourth-quarter net loss totaled $219.1 million.

“We generated net losses of $321.2 million, $67.7 million and $7.8 million for 2019, 2018 and 2017, respectively,” the company said in a 2019 SEC filing. “Our accumulated deficit was $430.1 million as of December 31, 2019.”

To cut costs, the company said in February that it was slashing 10% of its workforce. “By reducing headcount and cost, Tilray will be better positioned to achieve profitability and be one of the clear winners in the cannabis industry,” the company said in a statement.

Tilray is a diversified company, in the sense that it covers both recreational and medical cannabis, plus hemp. It also produces both THC and CBD products. Both are natural components found in marijuana, but only THC produces the emotional high associated with smoking marijuana recreationally. Marketers of CBD products tout the compound’s reported benefits for pain, anxiety and other conditions — all without a euphoric high.

Last year, revenues increased due to growth of the Canadian legal pot market and the completed acquisition of Manitoba Harvest. Manitoba sells hemp-based foods and supplements in 17,000 retail locations in 20 countries, including the U.S. and Canada. Analysts will be looking for an update on this retail play.

In the consumer space, look for news about THC and CBD edibles and beverages through Tilray’s High Park brand. Several products debuted in December, including Everie, a non-alcoholic CBD-infused drink produced by Fluent Beverages. Fluent is a joint venture between Tilray and AB InBev (NYSE: BUD). Drink marketers expect cannabis-infused drinks to be a growing trend.