The Tilray share price leapt by 13.6% yesterday after the world’s largest legal cannabis company surprised markets by announcing it had achieved profitability. Strong demand for the recently legalised drug, which Tilray sells to medical and recreational consumers in North America, helped revenues to $155 million. That represented growth of 20% on sales figures from a year ago.
Toronto-based Tilray also told the market that efficiencies generated by last May’s merger with Aphria, another Canadian legal cannabis company, had led to cost savings of $70 million. The combination of savings and improved revenues saw Tilray achieve a surprise fourth quarter pre-tax profit figure of $6 million. That compares to an $89 million loss over the same three months in 2021.
However, Tilray’s 20% rise in revenues over the three months to the end of November actually fell short of analyst expectations. Investors may well have reacted negatively if savings had not delivered the unexpected move into the black. Tilray’s chief executive and chairman Irwin Simon attributed the more sluggish than expected growth to market saturation and intense competition.
2013-founded Tilray cultivates, develops and distributes cannabis products and is, by sales, the world’s biggest legal cannabis company. It operates across more than 20 countries, selling over 20 brands.
The company currently has a market value of $3.5 billion. However, having sold its stock for $17 at the 2018 IPO that took it public, Tilray’s shares currently trade at just $7.29. At one point shortly after the company’s 2018, the Tilray share price had rocketed to over $148 as investors got over-excited by the prospects for the huge new market the gradual international legalisation of cannabis was opening up.
Many early investors in publically-listed legal cannabis companies were undoubtedly burned by the late 2018 bursting of that sector bubble. However, as the legal cannabis market matures and big new markets come online, Germany is expected to legalise recreational cannabis use this year, now might be a good time for investors to consider “pot stocks” again. They are multiple times cheaper than they were a few years ago and the sector is probably entering a period of consolidation and M&A activity which could drive valuations up and improve the sector’s efficiency.
Tilray competitors like Canopy Growth, Cronos and Hexo also saw their valuations rise yesterday as the whole sector received a boost from the new evidence the legal cannabis sector may finally be learning how to be profitable.
Mr Simon commented on his company’s recent success with:
“We maintained our No 1 cannabis market share position in Canada, despite market saturation and related competitive challenges, on the strength of our brands and adept pricing and marketing adjustments. Importantly, we believe these adjustments will enable us to aggressively recapture share when the market right-sizes.”
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