Tilray Brands, Inc.

TLRY Details

Tilray Brands, Inc. (NASDAQ: TLRY) is a prominent worldwide cannabis lifestyle and consumer packaged products firm with operations in Canada, the United States, Europe, Australia, New Zealand, and Latin America, as well as the industry's largest global geographic reach. In the United States, only Manitoba Harvest CBD products and SweetWater beer are accessible.

Key Highlights

• EU GMP Certified operations: Tilray is having EU GMP-certified operations which is a significant advantage as legalization spreads. Tilray is uniquely positioned as the only company on the continent with two EU GMP facilities located in Portugal and Germany.

• 1 Market share in Canada: The Canadian cannabis market remains crowded and oversaturated. This has led to an oversupply of product and price compression. In the last 12 months, the market has seen reductions in retail pricing of 24.5%. Despite these price reductions, the company has been able to maintain their margins in the 40% range. In Q3, its retail market share declined to 10.2% from 12.8% in the sequential period because of this heightened price compression. Still, they maintained their No. 1 market share in Canada and leading positions across numerous adult-use categories.

Q3 FY22 Results:

• Revenue Growth: TLRY's net revenue climbed by 23% to USD 152 million in Q3 FY22 from USD 124 million in Q3 FY21, owing to a 32% rise in cannabis revenue, a 64% increase in beverage alcohol revenue, and a 33% increase in wellness revenue.
• Strong bottom-line performance: Net income for the quarter increased to USD 52.5 million from a loss of USD 258.6 million in the prior-year quarter. This was the second consecutive quarter reporting positive net income.
• Strong Liquidity Position: The company's cash and cash equivalents were USD 279.21 million as of February 28, 2022, while its long-term debt was USD 121.21 million, keeping the ratio below the industry median.

Key Risks:

• Customer Concentration Risk: A small number of prominent clients account for a large portion of TLRY's revenue. If it doesn't retain or build client connections, or if large clients cut back on their purchases, income might fall.
• Dependence on Third Parties: TLRY relies on certified and licensed cannabis flowers for manufacturing and sale. It may depend on third-party suppliers for high-quality cannabis flowers, putting the company's supply networks and product quality at risk.

Operational Growth Highlights:

• TLRY has realized cost savings of USD 76 million from the Aphria-Tilray combination on a run-rate basis. It is also expected to achieve its USD 80 million synergy goal by May 31, 2022, five months ahead of schedule, and to produce an additional USD 20 million in synergies in FY 2023.

Valuation Methodology: EV/Sales Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

TLRY's stock price has fallen 60.37% in the past six months and is leaning towards the lower of its 52-week range of USD 23.04 to USD 3.89. We have valued the stock using the EV/Sales multiple based relative valuation methodology and arrived at a target price of USD 5.78.

Cannabis users in the United States are expected to increase, with estimates of up to 50 million users by 2025, ensuring that the sector continues to thrive in the future. Based on top-line growth, strong liquidity position, related risks, and current valuation, we recommend a "Hold" rating on the stock at the current market price of USD 4.84, up 0.98% as of May 19, 2022, at 10:20 AM PDT.

TLRY’s 1 Year Technical Price Chart (as of May 19, 2022, at 10:20 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.