Positive Developments Counter Canadian Headwinds

Tilray’s (TLRY) FQ3 results showed that the struggle for share of the recreational Canadian cannabis market continues.

The Q3 post-tax sales fell by 13% sequentially to $33.2 million, following a 27% decline in Q2. Additionally, Tilray’s share of the market came under more pressure – dropping from Q2’s 12.8% to 10.7% in the quarter.

That said, despite these soft spots, and unlike in previous quarters, Jefferies’ Owen Bennett says there were “some signs for optimism.” For one, exhibiting the “smallest” sequential drop decline in over a year, the overall share loss has “slowed,” while in vape and pre-rolls, Tilray is actually seeing market share gains. Additionally, Bennett points to the “actions being taken that could mean better near-term trends in flower, including potency, new innovations, and bud-tender engagement.”

Another factor to consider is that, ultimately, Canada adult-use sales account for roughly 25% of the overall group gross profit. And promisingly, the other parts of the business are “performing well.”

In the international cannabis segment, estimated post-tax sales increased by over 15% quarter-over-quarter, while the company is in a great position in the “key” German market, boasting approximately a 20% market share. Post-tax sales grew by over 6% sequentially in the Wellness segment (which accounts for around 15% of group gross profit), and in beverage alcohol – which represents just shy of 30% of group gross profit – post-tax sales increased by 43% from the prior quarter. Not to mention, Tilray-owned Manitoba Harvest has just formed an exclusive partnership with Whole Foods.

Lastly, Tilray has US THC optionality. “This is key for material re-rating of all cannabis names, in our view,” Bennett opined. “It has existing US consumer assets that can be leveraged into THC (Sweetwater, Breckenridge, Manitoba Harvest), made a recent first move into THC when it acquired optionality on MedMen converts (with a clear path to control). It also has a balance sheet and existing ATM that would suggest more deals could come.”

As such, Bennett rates TLRY stock a Buy along with a $15.60 price target. This target suggests the stock will be changing hands for ~167% premium a year from now. (To watch Bennett’s track record, click here)

Most analysts, however, disagree with Bennett’s stance; only one additional review is positive, with all 6 others staying on the sidelines, resulting in a Hold consensus rating. However, there are still decent gains projected here; going by the $9.26 average target, shares will rise ~45% over the next 12 months. (See Tilray stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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