Tilray Inc: Big Moves Are Back for This Major Pot Stock

Time to Pay Attention to TLRY Stock Again

Remember the days when pot stocks were making double-digit gains in a single trading session?

Over the years, the marijuana sector has enjoyed several rounds of such frenzy. But, as is the case with most parabolic runs, after a stock goes vertical, it’s bound to have some pullbacks. And the last pullback for marijuana stocks was pretty substantial.

Earlier this year, during a “Reddit”-fueled meme stock frenzy, many pot stocks skyrocketed. However, since the peak in February, investors seem to have turned away. Even the hottest tickers haven’t been able to continue their upward momentum.

But now, they might start making a comeback, with Tilray Inc (NASDAQ:TLRY) leading the charge.

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Tilray is one of the most popular names among marijuana stock investors. The company has always been known as a major player in the Canadian cannabis industry, but it also has operations in the U.S., Europe, Australia, and Latin America.

Tilray stock is listed on both the Nasdaq Global Select Market and the Toronto Stock Exchange under the ticker symbol “TLRY.”

TLRY stock went public in July 2018, and 2021 is bound to be a special year for the company for a very simple reason: it completed the biggest merger ever in the cannabis industry.

On May 3, Tilray Inc announced the completion of its business combination with Aphria Inc, which was also a prominent player in the Canadian cannabis industry and a Nasdaq-listed pot stock. (Source: “Tilray & Aphria Announce Closing of Transaction That Creates the “New” Tilray – a Global Cannabis Leader,” Tilray Inc, May 3, 2021.)

The combined company became the new Tilray, with each Aphria shareholder receiving $0.8381 of a Tilray share for each Aphria share they owned.

The transaction created the biggest cannabis company in the world measured by revenue.

The merger is expected to lead to substantial cost synergies in the key areas of cultivation, production, purchasing, sales, marketing, and corporate expenses. Management projects that the combined company will achieve approximately $81.0 million of annual pre-tax cost synergies within 18 months of closing the deal.

Of course, as I mentioned earlier, marijuana stocks have returned to Earth after the meme stock frenzy earlier this year. And Tilray stock was no exception. Over the last several months, it simply wasn’t a hot commodity.

Until now.

On July 27, TLRY stock closed at $12.73 per share. The next day, it closed at $16.01 per share. That’s a gain of 25.8% in a single trading session!

Tilray Inc (NASDAQ:TLRY) Stock Chart

Chart courtesy of StockCharts.com

The trigger for the massive jump in Tilray stock’s price was an earnings report the company released in the morning of July 28.

The report showed that, in the fourth quarter of Tilray’s fiscal year 2021, which ended May 31, it generated $142.2 million of net revenue, marking a 25% increase year-over-year. (Source: “Tilray, Inc. Reports 2021 Fiscal Year and Fourth Quarter Results,” Tilray Inc, July 28, 2021.)

In particular, the company’s net cannabis revenue grew by 36% year-over-year to $53.7 million. Its distribution revenue, on the other hand, declined by 10% to $66.8 million.

Wall Street was forecasting that Tilray would report $150.0 million in revenue, so the company actually missed the top-line expectation. But there were other metrics that impressed market participants.

For instance, Tilray Inc generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $12.3 million, up by 285% from the $3.2 million in the prior year and marking the ninth consecutive quarter of positive adjusted EBITDA.

Considering that analysts were expecting $5.8 million in adjusted EBITDA, Tilray absolutely smashed the expectation for this metric.

Furthermore, the company reported earnings of $0.18 per share for the fourth fiscal quarter, while Wall Street was anticipating a loss of $0.07 per share. So, Tilray Inc substantially outperformed the estimate for the bottom line.

The company said it had already achieved $35.0 million in synergies from the Aphria merger and is on track to deliver $80.0 million more in cost savings over the next 16 months.

In its earnings report, Tilray also mentioned that it has been gaining market share in Canada month-over-month since April 2021, and that it’s currently the No. 1 player in the country’s legal marijuana sector.

Regarding the U.S. market, Tilray Inc’s chairman and chief executive officer, Irwin Simon, said there are two paths ahead:

Number one is looking in the consumer products area in alcohol and food that today our products that are sold in the marketplace that ultimately be converted to [tetrahydrocannabinol] and [cannabidiol] products, once legalization does happen…Alongside of that would be to be looking at optionality and investments in [multistate operators].

(Source: “Tilray, Inc. (TLRY) CEO Irwin Simon on Q4 2021 Results – Earnings Call Transcript,” Seeking Alpha, July 28, 2021.)

Analyst Take

Seeing a stock you own go vertical is probably one of the sweetest feelings for pot stock investors. But while I believe in Tilray Inc’s growth potential, I should point out that massive rallies are often followed by sizable pullbacks. In fact, TLRY stock slipped by 3.7% on July 29.

At the same time, the uncertainty in the outlook of the global cannabis industry means marijuana stocks will likely remain volatile, and big swings can happen in both directions. In other words, pot stocks—including established ones like Tilray stock—will continue to be high-risk, high-reward types of plays.