Tilray Brands (TLRY), a leading player in the global cannabis industry, is facing a cautious outlook from analysts at Zuanic & Associates. While the company boasts a solid balance sheet and a diverse portfolio of assets across international markets, short-term uncertainties cloud its near-term prospects.
Tilray’s international expansion is gaining traction, particularly in Germany where sales have surged by 50%. This positive development signals Tilray’s potential for growth in the burgeoning European cannabis market. However, headwinds remain. High operating expenses and a rising share count continue to pressure profitability. Furthermore, Tilray’s market share in Canada, its home market, has been eroding, as the company has chosen to avoid aggressive discounting in certain product categories.
In the U.S., Tilray is strategically entering the non-alcoholic hemp beverage market. The acquisition of craft beer brands from Molson Coors (TAP) strengthens its portfolio and positions Tilray to capitalize on the explosive growth potential of this segment. Despite these strategic moves, Tilray’s revenue for the August quarter, at $200 million, falls short of its $950 million target for FY25, raising questions about near-term growth momentum.
Tilray’s operating expenses are a concern, with Selling, General & Administrative (SGA) costs reaching 34% of sales in the first quarter of FY25, up from 31% in FY24. This increase in cash SGA expenses has led to a 300 basis point decline in Tilray’s adjusted EBITDA margin. Furthermore, Tilray’s share count has ballooned, climbing from 657 million in FY23 to 903.3 million by October 2024. While this move bolsters liquidity, it dilutes per-share revenue metrics. Despite the dilution, Tilray’s revenue per share has remained stable, thanks to accretive growth from recent acquisitions. However, the company will need to drive continued organic growth to justify its valuation metrics and maintain investor confidence.
With an estimated valuation of $1.67 billion, Tilray trades at a 1.7x EV/sales multiple. Its cannabis segment trades at a premium of 4x, exceeding industry norms. While Tilray’s liquidity and extensive market reach make it a formidable global player, Zuanic advises investors to wait for clearer evidence of sustainable growth across international markets and improvements in operational efficiency.
Tilray’s future hinges on its ability to capitalize on international cannabis expansion, revitalize its U.S. brands, and enhance its financial performance. For now, Zuanic & Associates recommends that potential investors remain on the sidelines, as Tilray’s path to success relies on a steady, strategic push through emerging global markets.
