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TLRY Stock: Tilray Brands Downtrend Should End Soon


Since the beginning of the year, the stock of Tilray Brands (NASDAQ:TLRY), one of the world’s leading cannabis producers, lost ground, down 3% to $6.80 per share. TLRY stock outperformed the broader market over the period, due to renewed investor interest in the cannabis major’s prospects and its poor stock performance last year.

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One of the largest exchange-trading funds in the cannabis industry, with assets under management of over $200 million, is the AdvisorShares Pure Cannabis ETF (NYSEARC:YOLO). The YOLO ETF is down 14% year-to-date at $11.15 per share. the SPDR S&P 500 Trust ETFs (NYSEARC:TO SPY), by comparison, fell 7% to $439.90 per share. In recent quarters, investors have retreated from the sector and YOLO has lost over 60% of its market capitalization since peaking at $31.87 per share in February 2021.

With that in mind, let’s review TLRY’s development outlook, financials, and valuation metrics. These can help us gauge whether it can end its downtrend.

TLRY Stock is a major player in the cannabis market

TLRY has a leading position in the recreational cannabis market in Canada, the United States and Germany. The global size of the cannabis industry is expected to grow rapidly over the next few years. According to Globenewswirethe cannabis market is expected to grow at a compound annual growth rate (CAGR) of 27.25% over the period 2021-2026, reaching a terminal value of $54.41 billion.

Additionally, TLRY is well positioned to benefit from the relaxation of European legislation on the recreational use of cannabis. With Luxembourg becoming the second European country to legalize its use in October 2021, Germany is expected to approve it later this year. This will have a significant impact on Tilray’s business, given that the company is already present in the country with a market share of around 20%.

Additionally, TLRY has improved the variety of products it markets, offering several new cannabis-based wellness drinks and products. For example, Tilray can leverage two of its brands in the United States, namely SweetWater and Manitoba Harvest, to expand its product portfolio and increase revenue. SweetWater is the 11th largest craft brewer in the country, and Manitoba Harvest is a pioneer in hemp, CBD and wellness products.

TLRY has encouraging finances, but it’s still profitless

The company released encouraging financial metrics in the second quarter of 2022. TLRY revenue grew 19.8% year-on-year to $155.1 million, while net profit reached $5.79 million dollars, compared to a net loss of $89.2 million in the second quarter of 2021.

For fiscal 2022, analysts expect TLRY’s revenue to grow 28.5% year-over-year to $659 million, before growing 11.5% in 2023 to $735 million . Despite this, the company’s profitability is estimated to remain in the red zone. With an expected net loss of $175 million in 2022, which is expected to moderately slow in 2023 to $114 million, TLRY’s net margin is expected to remain negative at 15.5% in fiscal 2023.

In terms of the balance sheet, TLRY’s cash and cash equivalents have shrunk 32% over the past six months, falling to $331.7 million. This is attributable to TLRY’s active acquisition strategy. In December 2021, he purchased the Breckenridge Distillery. This will allow it to position itself more broadly ahead of a possible federal legalization of marijuana in the United States and to rapidly develop its line of cannabis-infused drinks.

While continuing to consolidate its positioning in the United States, TLRY managed to generate more than $70 million in cost synergies following the combination with Aphria. It now expects to exceed its original plan of $20 million in 2023.

With these advances, TLRY stock is expected to increase free cash flow in 2022, posting a beneficial $42.6 million for the first time from negative $83.6 million last year. .

The cannabis specialist trades at a reasonable premium

The cannabis-focused company has overvalued valuation multiples relative to its peers, trading at an expected 2022 EV/income of 5.1x and EV/EBITDA of 57.6x.

Curafeuille Holding (OTCMKTS:CURVE), one of the largest companies in the industry by market capitalization, is valued in line with the EV/income of TLRY, with a ratio of 5.16x. On the flip side, CURLF’s EV/EBITDA is almost a third of Tilray’s, coming in at 21.1x.

Canopy Growth Society (NASDAQ:GCC), another major player in the cannabis market, is more expensive in terms of 2022e EV/CA, posting a ratio of 8.2x and but has a negative EV/EBITDA of 13.2x.

Aurora Cannabis (NASDAQ:ACB), a smaller Canadian-based cannabis company by market capitalization, is currently trading at a slight premium in terms of 2022e EV/revenue to CGC, posting a ratio of 5.65x, but has an EV ratio of /EBITDA of 40.1x.

TLRY is trading at a premium, especially when it comes to EV/EBITDA. However, I think Tilray’s geographic diversification and wide range of product offerings justify its price. So I have a long-term optimistic view on TLRY and believe that the easing of cannabis regulations in Europe and more broadly in the US will be a game-changer for the business.

At the date of publication, Cristian Docan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Cristian Docan, contributor for InvestorPlace.comhas been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach to evaluating stocks for readers, focusing on momentum investing and macro-focused strategies.

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