TLRY stock may pop one day, but that's what we already knew
Now that the merger with Aphria has passed, does it make sense to purchase Tilray (NASDAQ:TLRY) stock? That’s the basic question for which investors are seeking an answer.
For investors who want to establish a position in Tilray now, they’ll be making a bet that its U.S. consumer packaged goods (CPG) efforts will bear returns. The company will introduce its brands through craft beers and other beverages to increase awareness. The company also plans to expand its presence in CBD and other cannabinoids.
Let’s start by tackling how long it will take for the merger to really shake out. When can investors expect to be able to accurately judge whether the deal has provided value?
Time Will Tell
The old maxim serves no utility for investors. But it’s a relevant answer to how long investors should anticipate waiting to understand the true ramifications of the merger.
One figure to look at is Tilray’s projection that within 24 months of the late April merger it will achieve 100 million CAD ($82.4 million) in pre-tax cost savings. Therefore, we can reasonably anticipate that the company believes Aphria and Tilray’s disparate operations will be fully integrated by that time.
It’s probably more accurate that I say Tilray believes that in 24 months the two will be fully integrated and reflective of post-merger value.
In any case, it’ll be easy to make a quantitative-based judgment call at that time.
All we’ll have to do then is take a dive into the financials in a year and half from now, and fish out that pre-tax cost savings figure. If it exceeds 100 million CAD, that should indicate that the merger has proven accretive. If not, the opposite should be true. Expect markets to respond in kind whatever happens.
Markets Are Hesitant Now
A brief glance at the price chart of Tilray over the past three years tells a broad narrative about the market and cannabis stocks. Tilray became publicly traded in July 2018. Shares traded for about twice their current value then. Within two months share prices reached $214.
Eleven months later TLRY stock was down to its IPO price. Prices were flat and trending down for the next year and a half. Then, viola! Prices spiked to $64 in February of this year.
Investment in Tilray is not for the faint of heart, and that goes for the broader cannabis industry as well. For Tilray to truly thrive its CPG presence in the U.S. will be vital.
Tilray’s CPG Strategy
Tilray’s investor presentation for the Aphria merger indicated how the merged company will approach the U.S. market. The company is relying on two strategic pillars: branded cannabis lifestyle, and a hemp and wellness platform.
Along those lines, Tilray acquired Atlanta-based Sweetwater Brewing for $300 million. Tilray is using the beer company’s distribution network to build awareness of its own products. Tilray’s Manitoba Harvest brand has access to 17,000 North American retail stores which will bring more awareness of Aphria products.
Tilray also has a joint venture with Anheuser-Busch InBev (NYSE:BUD), giving its CPG business another base for potential success. The business, called Fluent, has yet to provide much to the company though.
Tilray’s latest 10-Q sheds light on that fact. In the first quarter of 2020, Tilray realized a net loss of $3.496 million from Fluent (and Cannafections – its other JV).
In the same period in 2021, the two 50% owned JVs saw a net loss of $3.574 million. Basically, they were stagnant at a high level.
The Bottom Line on TLRY Stock
Tilray remains essentially the same as it was prior to the merger: A company with lots of promise, but little to interest investors right now. Therefore, an investment in Tilray is really little more than hope that the cannabis industry finally takes off after all of the hype.