Tilray's Post-Earnings Pullback is a Buying Opportunity

Shares of Tilray (NASDAQ: TLRY) have plunged more than 33% in the past two days after the cannabis and craft beer specialist announced mixed fiscal third-quarter 2024 results relative to Wall Street’s expectations.

Perspective is in order

That brings Tilray stock to levels not seen since…*checks notes*…oh — just three weeks ago.

Seriously. In light of its post-earnings pullback, many investors seem to have forgotten Tilray stock rallied 78% in the four weeks leading up to its earnings release on Wednesday. That jump was fueled in part by Germany’s decision to legalize possession of small amounts of cannabis last month.

To be fair, far too many panicky headlines espoused Tilray’s slight revenue shortfall and “disappointing” guidance, with the latter including management saying they no longer expect free cash flow positivity for the full fiscal year.

In fact, zoom out a little bit, and you’ll see Tilray is now trading exactly even with where it stood three months ago.

Make no mistake: This is a volatile stock prone to such swings. But that’s par for the course with a business like Tilray: Still early in its growth story and with so much long-term potential.

Let’s actually dig into those results, then, to see whether this is actually a buying opportunity.

Tilray’s headline numbers

At a glance, Tilray’s results looked strong. The company managed to deliver breakeven earnings on an adjusted (non-GAAP) basis, beating estimates for a loss of $0.05 per share. And revenue grew 30% year over year to $188.3 million — albeit technically missing estimates by around $10 million and primarily driven by acquisitions.

Delving into the top line, beverage-alcohol segement revenue nearly tripled year over year to $54.7 million, thanks to its recent acquisitions of several big beer brands from AB InBev in late 2023. Cannabis revenue jumped by a third to $63.4 million, helped by Tilray’s acquisitions of Canadian cannabis peers HEXO and Truss. And both segments’ growth offset a modest decline in distribution revenue (down 13% to $56.8 million) amid changing regulations surrounding rebates and — to a lesser extent — weather and IT infrastructure outages.

I’d much prefer to see Tilray achieve its own organic growth in time, of course. But that’s a lot to ask at this stage considering the company already commands #1 market share positions in the cannabis industries both in Canada and Germany. And though its move to diversify further into alcohol beverages is admirable, that’s admittedly a crowded niche even as Tilray now stands tall as the 5th largest craft brewer in the U.S.

What’s next for Tilray stock?

The fickle market seemed more concerned about Tilray’s outlook; the company now expects full fiscal-year (ending May 31, 2024) adjusted EBITDA of $60 million to $63 million (down from $68 million to $78 million before). Management also said they no longer expect to achieve positive adjusted free cash flow this year as previously predicted. The reason? Delayed timing for collecting cash on various asset sales — something I can live with considering it 1.) isn’t related to a shortfall in Tilray’s operations, and 2.) doesn’t change anything for Tilray’s prospects over the long term.

But that’s where things could get truly interesting for Tilray — specifically in the United States cannabis market.

Even though 24 states have already legalized Cannabis at the state level as of this writing, Tilray has consciously decided not to participate in any cannabis operations in the U.S. so far.

Meanwhile, Tilray has been strategically building its stateside influence in the U.S. through its wellness brand, Manitoba Harvest, which sells hemp-based foods and supplements nationwide.

"In the event of federal cannabis legalization in the U.S.,” Tilray management wrote in their quarterly update this week, “we believe that Tilray is well positioned to immediately leverage its strong U.S. leadership position and strategic strengths across operations, distribution, and brands to include THC-infused products.”

Noting that the current U.S. Presidential Administration significantly shifted its stance on federal cannabis restrictions last month in favor of deschedulization, it might not be long until we see more substantial measures surface supporting federal legalization.

When (not if) that happens, I see no reason why Tilray won’t promptly revisit and exceed its previous highs. And I think patient investors would do well to use this pullback as an opportunity to open or add to their positions.