Cannabis producer Tilray Brands Inc. TLRY-Q reported a surprise profit amid stronger international growth in its fiscal third quarter, but its revenue fell short of analyst expectations.
Revenue in the quarter ended Feb. 28 increased 23 per cent to $152-million from $124-million last year, but was still below analyst estimates of $156.2-million. A third of that total came from cannabis sales, with the remainder derived from Tilray’s other products, including hemp health foods and beverages.
The Leamington, Ont.-based company reported profit of $52.5-million, compared to a loss of $258.6-million in the same quarter last year.
“This was a good quarter relative to what was expected, but not great considering the headwinds in the space overall,” said Canaccord Genuity analyst Matt Bottomley, noting the drop in revenue was in line with the industry as a whole. “The overall macro environment is very tough right now, certainly in Canada.”
In the past 12 months, the Canadian cannabis market’s retail prices have dropped by nearly a quarter as a result of immense competition between 800 licensed producers and 3,200 retail stores.
“Despite these price reductions, we’ve been able to maintain our margins in the 40-per-cent range,” said Blair MacNeil, president of Tilray’s Canadian business, in an analyst call on Wednesday.
The retailer’s market share in cannabis sales declined to 10.2 from 12.8 per cent last quarter.
Mr. Bottomley said Tilray’s international business has been growing faster than any other Canadian licensed producer, up 15 per cent from last quarter and 4,000 per cent from last year. “Anything in double-digit sequential growth is very strong,” Mr. Bottomley said.
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Tilray’s medical cannabis line now commands a 20-per-cent market share in Germany where it is the only facility producing medical cannabis – a head start it plans to leverage as countries move toward legalization. The company is selling medical cannabis products to markets in Portugal, Luxembourg, Britain, Ireland and Israel, and within a small pilot study in France. In February, Tilray made its first whole-flower medical cannabis sale in Malta.
“There is less clarity than the market in the U.S., but it looks to me like we actually might see some real movements in Europe in the next year or two,” Mr. Bottomley said. He noted that, given the slow Canadian growth, international sales would have to be a big part of Tilray’s business if the company is to meet its estimated revenue of $4-billion by 2024.
Outside of Europe, Tilray’s international business head Denise Faltischek said the company has seen further opportunities in Brazil, Argentina, Colombia, China and India.
Cannabis stocks were buoyed in early April by positive headlines from the U.S. concerning the possibility of legalization. Last week, the House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act, which would decriminalize cannabis, paving the way for Canadian producers to enter the market. The bill has yet to pass the Senate.
Tilray owns two beverage producers in the U.S. – craft brewer SweetWater Brewing and whisky maker Breckenridge Distillery – and plans to start producing weed-infused drinks at those facilities once cannabis becomes legal.
The company also announced Wednesday that its hemp food business, Manitoba Harvest, had signed an exclusive deal with Whole Foods to retail its products across North America.
Within Canada, Mr. MacNeil said the company will continue to expand its preroll and vape products, and would “rationalize” its brands by dispensing with any that are not profitable.
Last year, Tilray said it expected to realize $80-million in efficiencies after its merger with Aphria. In Wednesday’s call, Mr. MacNeil said the company would reach $80-million five months ahead of schedule by the end of May, and now plans to save an additional $20-million in the following year.
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Irene Galea