Tilray Isn’t Your Cannabis Bet for the Long-Haul

Canadian marijuana producer Tilray (NASDAQ:TLRY) became the largest cannabis producer in terms of revenue after its merger with Aphria last year. With such a massive development, many thought that TLRY stock would have zoomed to new heights. However, it has shed around 60% of its value in the past six months.

Tilray has laid its cards on the table and plans to achieve $4 billion in revenues by 2024. Considering its annual run rate of $513 million in sales, that’s a tall order. There are many moving parts to its potential growth story. In funding its plan, it needs to burn through a truckload of cash. The rising interest rate environment will have to resort to the equity markets, which points to more dilution for its shareholders. Therefore, despite some of the bright spots, it’s tough to get excited about TLRY stock at this time.

Move to THC Beverages

In early December, Tilray announced its acquisition of Colorado-based Breckenridge Distillery. Apparently, the company is “widely-known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio.” Naturally, you’d expect Tilray to put its spin on Breckenridge’s beverages soon.

It’s not Tilray’s first time foraying into the highly-lucrative beverages niche. The alcoholic beverages division of Aphria reported healthy first-quarter revenues of $15.5 million before Tilray acquired the company. Moreover, in November, Tilray announced that it would be launching a couple of ready-to-drink cocktails.

The cannabis beverage market is a very lucrative niche and will grow at an incredible pace in the coming years. According to Research Nester, it could potentially grow at a compound annual growth rate of 15% from 2020 to 2028. Moreover, research firm Global Industry Analysts predicts the global beverage market to reach $2 billion in revenues in 2026.

We will see the impact of the deal as early as the upcoming quarter. It will be interesting to see how much impact Breckenridge has on Tilray’s profitability. Tilray wouldn’t want to break the incredible streak of positive EBITDA results for the past ten straight quarters.

Weakening Financials

As stated earlier, Tilray plans to hit $4 billion in sales by 2024. It is nowhere close to that number at this stage, which is why you should expect more acquisitions in the future. Naturally, the danger for its investors is that it will result in more dilution and impact its financials. The Breckinridge acquisition was funded purely through shares and it cost the company $102.9 million.

Cash flows were in the red for Tilray, as well. In the first quarter of 2022, its cash from operations was -$93 million compared to the -$56 million it generated in the same period last year. The negative cash flows have resulted in Tilray’s deplorable cash position in the past couple of quarters.

The company’s management blamed one-time costs related to the Aphria merger for its negative cash flows. Looking ahead, these costs should decline significantly. Still, investors need to be cautious about the future, especially as Tilray has burned over $80 million in cash to fund its daily operations in the past four quarters.

Bottom Line on TLRY Stock

TLRY stock performed horrendously at the stock market last year and I don’t see a rebound around the corner. Tilray has plenty to prove to its investors if it wants to be taken seriously as a long-term investment in the cannabis space. Its foray into the THC beverages segment is enticing, but it needs to do a lot more to achieve its $4 billion revenue target. Hence, it is tough to be excited about TLRY stock.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.