Tilray Brands (NASDAQ:TLRY) just released its results for the third quarter of its fiscal 2024, and there’s nothing particularly objectionable in the data. Nevertheless, Tilray stock dropped 18% this morning, and investors may wonder whether there’s a prime bargain for the taking here.
Alternatively, Tilray stock might be “cheap for a reason,” as the old saying goes. Does the market perceive trouble ahead for Tilray Brands?
As always, I would encourage investors to rely on the actual data rather than on the fickle sentiment of short-term traders. That said, it’s important to try to figure out why the market is choosing not to partake of Tilray stock today.
A blue-chip canna-business
Every market sector has its blue-chip companies and stocks, including the cannabis-products sector. A decade ago, the bluest of the cannabis blue chips may have been Canopy Growth Corporation (NASDAQ:CGC).
However, Canopy isn’t the 800-pound gorilla in the room anymore. The ultimate blue-chip cannabis company would certainly be Tilray Brands, which owns Aphria, Hexo and Truss Beverages Company.
Aphria was a substantial canna-business in its own right, and Tilray is now a global juggernaut among cannabis companies. Thus, if Tilray is thriving, it’s a good sign for the sector as a whole.
Tilray and the rest of the cannabis market seemed to thrive in 2018. During that time, it felt like full legalization in the U.S. was right around the corner. Additionally, commentators were buzzing about so-called Cannabis 2.0, in which producers like Tilray were expected to make money hand over fist from ancillary cannabis products (a.k.a. “derivatives”) like vapes and edibles.
As it turned out, Cannabis 2.0 was more hype than reality. Secondary cannabis products didn’t turn out to be huge sellers like some investors hoped they would be. Furthermore, there was no massive tidal wave of cannabis decriminalization in the U.S.
Consequently, Tilray stock collapsed from $300 in 2018 to just $1.60 in mid-March. It was a devastating share-price collapse for canna-wealth hopefuls.
However, Tilray stock suddenly picked up steam during the past few weeks, rallying from $1.60 to $2.59 before tumbling this morning. To some extent, the share-price run-up may be attributed to the recent expansion of Tilray’s cannabis brands.
The primary catalyst though is probably the resurgence of hope for full cannabis legalization in the U.S. and elsewhere. Germany decriminalized cannabis for personal use, and Canada’s government is considering reducing the excise taxes on cannabis producers. Moreover, recent comments from U.S. Vice President Kamala Harris suggest that she favors reclassifying marijuana.
On top of all that, legalized marijuana use for recreational purposes will be on the ballot in Florida in November. Thus, given the aforementioned facts and catalysts, it certainly looks like a perfect storm is brewing, and Tilray stock ought to be flying higher.
Tilray stock tanks despite solid quarterly results
Additionally, Tilray just published its financial results for the third quarter of fiscal 2024, and there’s plenty of fodder for the bulls. If anything, Tilray’s results only point to growth and improvement.
Here’s what investors need to know. First of all, the company’s net revenue increased by roughly 30% to $188.3 million. A particular highlight for the quarter was Tilray’s beverage-alcohol net revenue, which soared 165% to $54.7 million. Perhaps then, there may be a renaissance in cannabis derivatives in 2024 — even if it didn’t happen in 2018.
At the same time, Tilray’s primary business, cannabis production, also brought a strong revenue stream. Notably, the company’s cannabis-segment net revenue grew 33% to $63.4 million in Q3 FY2024.
Additionally, Tilray’s adjusted gross profit increased 17% to $51.6 million. Frankly, I just couldn’t find anything in the company’s quarterly results to justify the share-price decline today. Tilray even managed to narrow its net earnings loss from $1.2 billion in the year-earlier quarter to just $105 million in the fiscal third quarter.
This begs the question of why Tilray dropped 18% this morning. I suspect that it’s just a hangover after the party, as the stock has rallied sharply over the past three weeks.
However, on a multi-year basis, Tilray stock is still down substantially. The company appears to be making progress toward profitability, and while there are no guarantees, changes may be coming in terms of cannabis legislation. Therefore, there’s still a long-term dip to be bought, and cannabis bulls might consider picking up a few Tilray shares for a small, speculative position.
