Canadian cannabis producer Tilray Brands is the Canadian and German market share leader. As it waits for the U.S. to reclassify cannabis as a less regulated drug and the company continues to add new products, is TLRY stock a bargain buy now?
What's New With Cannabis And Tilray?
Cannabis adoption is gaining ground. Republic of Slovenia is the newest country to place medical and adult-use cannabis laws to the ballot. This weekend, voters will decide if medical marijuana patients should be able to grow the plant for personal use. Currently, cannabis is legal for medical use but with controlled cultivation. Another ballot measure asks whether adults should be able to legally grow and possess marijuana for personal use.
Tilray continues to innovate and add new products. It announced its Solei brand's new cannabis-infused topical solution, Warming Deep Tissue Stick, to be available in Ontario this month.
Its Good Supply brand introduced three flavor combinations in its vape products.
Tilray stock has been sliding since it briefly showed signs of life in late April through mid-May. The pullback followed a 2.4% jump on May 16, after President Joe Biden tweeted on X that his administration "took a major step to reclassify marijuana."
The U.S. Department of Justice proposed to reclassify cannabis to a Schedule III drug from its current, and more restrictive, Schedule I status. According to the Controlled Substances Act, Schedule I drugs include heroin and fentanyl, while Schedule III is for substances with a lower potential for dependence. The new classification would come with additional tax benefits to cannabis companies.
On May 17, the cannabis stock sank on news Tilray may sell up to $250 million of stock to be used for upcoming acquisitions and to prepare for the potential reclassification of cannabis.
TLRY Stock Sinks After Disappointing Results
Shares dropped more than 20% in heavy volume after the company on April 9 reported a larger loss and lower-than-expected fiscal third-quarter sales than analysts expected. The cannabis stock continues to fall further below its 50-day and 200-day moving averages.
Tilray is still above its 52-week low of 1.50 marked on June 21, nearly a year ago. Shares have lost around 22% this year so far. Tilray's IBD Relative Strength Rating is 28 out of 99.
The stock's decline in the past three years has been spectacular. Tilray went public in July 2018 at 17 a share and peaked exactly at 300 in September 2018. It's now back around 1.79 a share.
TLRY stock pulled down competitors, including Canopy Growth and Cronos Group following its earnings report.
Sales Continue To Grow, But Pace Slows
Fiscal third-quarter net sales grew 29%, easing from a 34% increase in the prior quarter.
The company's cannabis net revenue grew 33% vs. the year-ago quarter, but its alcoholic beverage net revenue growth of 165% stood out once again.
The cannabis company lowered its fiscal 2024 forecast for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to a range of $60 million to $63 million from its previous target of $68 million to $78 million. In addition, Tilray said it "no longer expects to generate positive adjusted free cash flow for the full fiscal year 2024."
FactSet estimates losses ranging from 3 cents to 4 cents a share per quarter over the next four quarters. Meanwhile, its fiscal Q4 revenue is expected to rise 22% over the prior year's same quarter, then ease to 19% and 9% growth in the following two periods.
Analysts expect a fiscal 2024 loss of 30 cents per share, then for earnings to improve to an eight-cent loss in fiscal 2025, according to MarketSurge.
Tilray held onto its top spot in the Canadian cannabis market in the February-ended quarter with its 11.6% market share.
Tilray Waits For More States To Legalize
So far, 24 states and Washington, D.C., have legalized recreational marijuana. Eleven states may look to legalize marijuana in 2024, with five seeking medical cannabis legalization and six others adult-use legalization.
Currently Florida, Idaho, Nebraska and South Dakota will try to put legalization before their voters in the November election, while state legislatures will decide the issue in the other seven states.
While the company waits on federal legalization of cannabis, it is bolstering its alcoholic beverage presence and developing new products for additional growth.
Its strategy is to leverage its brands, infrastructure, expertise and capabilities to drive market share. Tilray's growth plan focuses on new products and new geographies.
TLRY Stock Fundamental Analysis
Earnings growth is a staple of top stocks. But Tilray's EPS Rating dropped to a weak 16 following its latest quarterly report. Other Canadian marijuana stocks also have mediocre or weak profit ratings as they continue to lose money.
Tilray's Composite Rating has improved to 32 from a dismal 11 in February. IBD research says investors should focus on stocks with Composite Ratings of 90 or higher.
The company's SMR Rating — which measures sales, profit margins and return on equity — is C. But its IBD Accumulation/Distribution Rating of B- indicates institutions have been modestly buying shares over the last 13 weeks.
Is TLRY Stock A Buy?
TLRY stock's breakout from a cup base in late March and early April failed. It's not in a base and the chart looks weak, so Tilray stock is not a buy right now.
In addition, Tilray's fundamentals still need a lot of improvement, including a return to sustained profitability.
IBD advises investors to focus on stocks with stronger fundamentals that are moving into buy zones. Institutional investors also typically avoid low-priced stocks like Tilray.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
