Canadian cannabis producer Tilray (TLRY) on Wednesday reported fiscal fourth-quarter sales that just missed estimates, but better-than-expected earnings — including positive net income that came with something of an asterisk.
Still, Tilray stock jumped, and other marijuana stocks rallied. The results are the first from Tilray since it merged with rival Aphria in May, a move that fattened the company's market value but raised questions about its positioning outside Canada.
Tilray Earnings
Tilray reported GAAP earnings of 18 cents per share, compared to Wall Street's expectations for an eight-cent per-share loss.
The company technically reported net income of $33.6 million. However, that move into the black was driven by a swell in net non-operating income due to an unrealized gain on convertible debt, driven by a change in its share price and the price of that debt, CFO Carl Merton said on the company's earnings call.
Revenue rose 25% to $142.2 million. That was slightly below forecasts for $142.93 million.
Adjusted EBITDA — the cannabis industry's preferred profitability metric — was $12.3 million. Tilray generated free cash flow of $3.3 million, compared to a cash burn of $28.3 million a year earlier.
Tilray stock and other marijuana stocks were driven higher this year amid U.S. legalization prospects and the meme-stocks craze. But the stocks have since given up a good chunk of those gains.
Lockdowns, Summer Vacations
Tilray on Wednesday said that coronavirus lockdowns across Canada and in Germany kept results from being stronger during the quarter, which ended May 31.
In Canada, the company said during the call, store restrictions in Ontario, Alberta and British Columbia during the quarter kept many shoppers online, where they bought weed based on price rather than branding or other characteristics.
Ontario, Canada's most populous province, has since been taking steps to reopen. But Canada has struggled with low vaccination rates. Competition in the cannabis industry has increased.
In Germany's medical marijuana market, Tilray said, pandemic restrictions kept it from securing supply from lower-cost nations to needed meet demand. Patients who might normally stock up on pot ahead of summer vacation didn't do so this year.
CEO Irwin Simon, during the call, said that as Canada's economy reopens, customers would shift away from buying cannabis based on its price as they begin interacting with budtenders again in pot shops.
He also said that if cannabis was federally legalized in the U.S., "we can foresee with the next 24 months" that Tilray would be "ideally positioned" to compete there, via CBD and THC beverages, CBD foods and other products.
'Wine In A Can, Et Cetera'
Tilray's merger with Aphria brings together Tilray's medical businesses in Europe and Australia and Aphria's pharma distribution business, which had driven a majority of Aphria's sales and made up 47% of Tilray's net sales during its fourth quarter. It also combines Manitoba Harvest — which makes hemp CBD extracts, hemp granola and other foods — and craft brewer Sweetwater. Those two companies sell products in the U.S.
Simon, during the call, said Tilray was also working on "opportunities" for Sweetwater that related to "CBD tequila mixes, wine spritzer mixes, wine in a can, et cetera."
When the merger deal was announced last year, marijuana stocks analysts said those businesses would do little capture the U.S.' market for THC products, whenever it might open up to Canadian producers.
"We believe it could still be one to two years until U.S. marijuana is federally permissible, and there is still little visibility on Tilray's path to enter U.S. THC markets," Piper Sandler analyst Michael Lavery said in a research note on Wednesday.
Pot Bill Seen As Dud For Marijuana Stocks
Among other Canadian marijuana stocks, Canopy Growth (CGC) rallied 6.7%, Cronos Group (CRON) rose 7.15%, Aurora Cannabis (ACB) climbed 6.6% and Hexo (HEXO) added 7%.
The results from Tilray follow a difficult round of earnings for other U.S.-traded Canadian producers, who have blamed coronavirus retail restrictions in Canada and in Europe for weaker sales.
Meanwhile, Sens. Chuck Schumer, Cory Booker and Ron Wyden this month unveiled draft legislation that would federally decriminalize cannabis, while allowing states to set their own policies. The lawmakers will seek public feedback on the bill in the weeks ahead.
But Schumer said the legislation, as it currently stood, didn't have the necessary votes. Marijuana stocks fell the day the draft bill was announced.
"We believe this legislation is designed to fail," Cowen analyst Jaret Seiberg said in a note this month.
"It is close to everything that progressives want while providing little reason for Republican senators to back the measure," he continued. "We see it as a political effort designed to boost Schumer and other Democratic senators in the 2022 primary and general election fights."
