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Market Insights

Tilray's high came down fast - what next?

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Stock of the week: Tilray

Tilray shot to fame back in 2018 when the marijuana industry was really getting attention. The legalisation of medical use marijuana and subsequent deregulation across the world was an opportunity for the Canadian firm.

In many ways, the firm blazed a trail. Long before Wall Street Bets made short squeezes mainstream news, Tilray had already been there, done that. In september 2018, short interest was huge. All it took was one comment from (then CEO) Brendan Kennedy confirming that Tilray was looking at consumer products that use marijuana ingredients to fuel an options frenzy.

The share price spiked to $300, way above the $17 July IPO price. Then the great comedown began…

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Unfortunately, even as Tilray has launched new products and expanded into new markets around the world, the returns just haven’t materialised. Perhaps the rapid expansion and diversification has been part of the problem.

A global cannabis and alcoholic beverage business, wellness focused business in the US, plus a distribution network in Germany. Jack of all trades, and master of none?

The big hope for Tilray is an expansion into Europe, with a particular focus on the recreational market in Germany. Cantor Fitzgerald estimated the German market could reach a market size in excess of $12 billion: (84 million people, 69 million of potential legal age, assuming $150 per capita spend).

But Germany hasn’t even legalised recreational cannabis yet, and there’s no definitive date on the horizon. Even if Germany legalises, would a Canadian company be given instant market access or would there be barriers designed to favour European businesses?

Tilray’s acquisition of Aphria was hailed as a breakthrough moment, but the benefits are yet to materialise, and to top things off, a shareholder suit is now proceeding amid allegations of misleading statements and ‘self-dealing’ directors.

Lots of problems, lots of headwinds. However, the company is now trading at $2.74 per share. One could argue that a lot of bad news has already been digested by the market. Many new businesses experience a boom of early investor enthusiasm followed by a bust of reality, especially in new markets.

In the last earnings call, CEO Irwin Simon laid out the future plans:

“First, the work we have done over the course of this fiscal year to optimise our global business and significantly improve our operational performance and lay the groundwork for sustainable profitable growth in 2023 and beyond. Second, I will discuss our strategic alliance with HEXO and the important role it plays in our future growth plans. And third, our plan to generate up to $4 billion in revenue depending upon federal legalisation in the U.S. and Germany at the end of fiscal year 2024.”

It’s a clear path of intent, but largely reliant on factors outside of the company’s control.

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For now at least, Tilray’s downtrend is clear, but any news on legalisation in the US & Germany could give the share price a boost. The 20 day moving average at 3.09(blue) or 50 day at 3.50 (orange) could provide resistance in the absence of strong catalysts.

Not investment advice. Past performance does not guarantee or predict future performance.

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