Why It’s Time to Start Taking Tilray (TLRY) Seriously


This morning, the U.S.-listed Canadian cannabis company, Tilray (TLRY), announced earnings. The fact that they did actually report earnings rather than losses looks quite significant at this point and may well represent a turning point for the company, if not for pot stocks in general. The stock is trading higher in this morning’s premarket as a result but may still represent a good buy for those with a healthy risk appetite.

As recently as just a few day ago, articles like this, predicting losses even as Tilray grew revenue, were frequently seen. However, that isn’t what transpired. They did grow sales significantly but managed to do so while actually making money or, depending on how you read the numbers, at least breaking even. That is obviously a good sign in general, but the way they achieved it may be more significant than just the bare numbers suggest.

Tilray is, in many ways not your typical pot stock. For starters, cannabis isn’t their only area of interest. They also own Sweetwater Brewing, an Atlanta-based craft brewery and a company that has itself expanded recently with entry into the liquor market. Then there is their substantial European medical marijuana business where they are the largest supplier of medical marijuana in Germany. Those businesses give Tilray some big advantages over many of their more “pure play” rivals in the industry, not least of which is access to mainstream U.S. banking.

The crazy situation where these publicly listed companies whose products are legal where they are sold are still seen as criminal enterprises in the eyes of federal law will probably change this year. Many, including me, had high hopes that a provision attached to the defense funding bill that addressed the issue to some extent would pass, but it was taken out of that bill before passage. There is, however, still proposed legislation to give cannabis companies access to banking, in the form of the S.A.F.E Act, that has a chance of becoming law. That only addresses one aspect of the stupidity but, more generally, there is a bipartisan feeling that the situation must be rationalized before long.

In the meantime, Tilray has been busy navigating the craziness, and in doing so, diversifying in ways that will make them far more appealing than the purely recreational cannabis companies chasing a still-restricted market. The fact that they have done that and increased revenue, while simultaneously shifting from losing to profitable operations, is a testament to the management of the company. That should go some way towards reassuring the hesitant Wall Street analyst community as to the long-term viability and prospects of TLRY. Over the next few weeks, investors can expect to see some of those analysts shift from bearish or neutral stances to more positive ratings, and the stock to respond accordingly.

Until now, TLRY has best been known as a kind of meme stock with the added plus, or minus in the eyes of many, of being a pot stock. The frenzy that sent the stock to a high of $67 early last year before it dropped back to current levels still dominates a one-year chart (above), and it also dominates the opinions of a lot of analysts. It makes them view TLRY as a gimmicky stock, when this morning’s numbers show it is anything but. It is a serious company, with some diversification and good prospects whether pot stocks get back in favor or not.

At some point, that disconnect will have to be resolved and the price will increase to reflect the reality rather than the narrative. That process looks like it is beginning today and, if so, TLRY is a good buy even after this morning’s massive pop.

Do you want more articles and analysis like this? If you are familiar with Martin’s work, you will know that he brings a unique perspective to markets and actionable ideas based on that perspective. In addition to writing here, Martin also writes a free newsletter with in-depth analysis and trade ideas focused on just one, long-time underperforming sector that is bouncing fast. To find out more and sign up for the free newsletter, just click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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