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Tilray, based in Leamington, Ont., reported a loss of US$34.6-million for the quarter ending Aug. 31, 2021.Rafael Marchante/Reuters

Canadian cannabis giant Tilray Inc. is eyeing potential acquisitions of domestic producers in a bid to achieve greater market share and reach an annual revenue target of US$4-billion by 2024.

Chief executive officer Irwin Simon told The Globe and Mail that while he originally believed Tilray could increase sales with its existing range of product offerings, he has come to realize that the Canadian recreational market is too fragmented and more consolidation is needed. That thinking was behind the acquisition of rival Aphria Inc. earlier this year.

“If there is a company out there that has a premium brand or is strong on the medical side, we will be open to an acquisition. But only if it made sense,” he said.

There are more than 500 licensed cannabis producers in Canada, ranging from tiny microgrowers to production giants such as Tilray, HEXO Corp. of Ottawa and Smith Falls, Ont.-based Canopy Growth Corp. The latter three companies make up 34 per cent of recreational cannabis sales according to recent data from the cannabis market intelligence company Headset.

Tilray says it has captured 16 per cent of the Canadian cannabis market and intends to double that over the next three years. But gaining market share is a challenge in an increasingly splintered market where demand fluctuates according to the prices and the potency of strains. The top-10 cannabis producers have a market share of 60 per cent, but hundreds of other producers have increased their market share over time to almost 40 per cent, cumulatively, according to Headset.

Tilray, based in Leamington, Ont., reported a loss of US$34.6-million for the quarter ending Aug. 31, 2021. It had booked a gain of US$33.6-million the previous quarter ending May 31, 2021. The company attributed the loss to merger transaction costs and administrative expenses associated with the Aphria merger.

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Revenue increased by 18 per cent quarter-over-quarter to US$168-million. Only 42 per cent of that revenue – or US$70-million – came from cannabis sales.

Because of the Aphria merger, there are not comparable year-over-year financials

Tilray derives a bulk of its revenue from its pharmaceutical distribution business in Germany, CC Pharma GmbH, in addition to alcohol sales from its ownership of Atlanta-based SweetWater Brewing Co., and hemp sales from Manitoba Harvest. Cannabis sales, however, did improve by 31 per cent between quarters.

The company recently shut down two key production facilities that it had deemed redundant after its merger with Aphria Inc. – a 60,000 square-foot indoor growing plant in Nanaimo, B.C. and a one-million-square-foot greenhouse in Enniskillen, Ont. Mr. Simon said those facilities were closed because they were expensive to operate relative to the sales they generated.

A massive barrier to navigating a fragmented product market, according to Mr. Simon, is the inability of cannabis producers to advertise. He said Tilray and a number of other cannabis producers are actively lobbying the federal government to loosen advertising rules for pot products.

“We’re not talking about having billboards up. We just want to be able to have more flexibility on educating consumers on the benefits of cannabis, using social media, for example,” he said.

Investors appeared relatively neutral about the company’s latest earnings report. Tilray shares were up 2 per cent by midday to $13.88 on the Toronto Stock Exchange. The company’s stock has fallen by almost 30 per cent since the beginning of the year, partly because of mediocre earnings reports for major cannabis companies over the past few quarters and vanishing hopes of federal legalization in the United States in the near future.

In August, Tilray acquired over $200-million worth of debt in U.S. cannabis retailer MedMen Enterprises in an attempt to make inroads into the U.S. cannabis market. Mr. Simon still believes it was the right move despite bureaucratic hurdles that keep arising south of the border on the path toward legalization. “We have many other aspects of the business to grow and focus on while that sorts itself out,” he said.

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