Shares of Canadian cannabis company Tilray Inc. rose 26% on Wednesday, after the company posted a surprising profit for its fiscal fourth quarter, in its first earnings report since the May merger with Aphria Inc. ditch.
The newly combined company TLRY,
The world’s largest cannabis company by revenue posted net income of $33.5 million for the quarter to May 31, or 18 cents per share, after losing $84.3 million, or 39 cents per share, in the previous period.
Revenue rose to $142.2 million from $113.5 million a year ago.
The FactSet consensus was for a loss of 12 cents a share and revenue of $199 million, although at least one analyst, Pablo Zuanic of Cantor Fitzgerald, said prior to publication the consensus numbers resembled an “apples and oranges” comparison. to offer. The numbers were based on 13 weeks pre-fusion Aphria numbers and four weeks post-fusion Tilray.
Chief Executive Irwin Simon said the company was pleased to see profits amid a pandemic, with stores in Canada closed and much of Europe shut down.
“Our intent is to make it profitable and cash flow positive,” he said. Tilray generated free cash flow of $3.3 million in the quarter.
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At a conference with analysts, Simon set a goal of hitting $4 billion in revenue by 2024, assuming full legalization of cannabis in the US, along with organic growth, acquisitions and partnerships.
“In addition to what we have accomplished in the past six months, our perseverance during the COVID crisis itself further validates that this team knows how to run, execute and get results,” he said, according to a FactSet transcript. “Consider at the highest level, we lost more than $100 million in revenue due to store closures and the overall impact of COVID. And yet we immediately implemented cost-cutting measures, which ultimately helped us build EBITDA to over $40 million by 2021.”
Cantor’s Zuanic praised the “ambitious vision” offered during the call, although he said the stock action could have more to do with a short squeeze. Tilray has become one of the “meme” stocks closely followed by investors on Reddit forums. Still, the analyst reiterated his overweight assessment of the stock, the equivalent of buying, and a $19 price target that is 19% above its current price.
Fourth quarter sales were boosted by a 36% growth in cannabis sales to $53.7 million, including a 10% decline in distribution revenue, net alcoholic beverage revenue of $15.9 million after the Nov. 25, 2020 acquisition of SweetWater and wellness revenues of $5.8 million from Manitoba Harvest, the company said in a statement.
Tilray’s presence in the US market is through SweetWater, a cannabis craft beer brewer, and Manitoba Harvest, a maker of hemp, CBD and wellness products that has access to 17,000 stores in North America.
Tilray remained loss-making for the year, posting a loss of $336 million, ahead of the $100.8 million loss recorded in fiscal 2020. The loss was caused by $63.6 million in transaction costs, following the Aphria merger, and $170.5 million in non-cash unrealized losses on convertible bonds.
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The company has achieved $35 million in synergies on the Aphria deal and expects to reach its target of approximately $80 million within 18 months of closing.
Other goals for 2024 include increasing the company’s Canadian market share to 30% from about 16% currently, Simon said.
“Strategic partnerships with county boards and retail partners, we have a strong relationship with county boards across the country and retail partners,” he told analysts. “We will continue to create merchandising and education platforms for bud tenders and consumers to drive brand loyalty to our portfolio. Both strategies will drive absolute growth in the Canadian market.”
Simon admitted that Canadian legalization was not the bonanza some had hoped for, which he attributed to the fact that it was really “quasi-legalization.” Restrictions on activities such as advertising made it challenging to develop brands and brand loyalty, and the company is lobbying the government to include medicinal cannabis in health care plans.
In the meantime, Tilray is working to educate doctors about the benefits and safety of medicinal cannabis, and to educate its own investors, the vast majority of them retail investors, about its products.
“We use that foundation to make sure they know our products. Why not buy the product and the stock?” Simon says. “We also need to educate consumers about the benefits of cannabis for adults. There is still a lot of hesitation.”
Simon expects the US to legalize cannabis through some bill in the next two years, and the company will look to expand its operations in Manitoba with a food deal, and Sweetwater with an alcohol or beverage deal, and to make an option-based deals with a multistate operator.
In the meantime, he is confident that some European companies will legalize for the US and expects Germany, which has a large medical cannabis program, to be a leader.
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