This cannabis producer needs its expanding operations to produce huge growth in revenue

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Marijuana Producer

An established medical marijuana producer since 2013, this company saw its shares soar after its July 2018 IPO. Even in volatile markets, they are more than triple the opening price.  

The company recently entered into several key partnership deals: one is with a major brewery to develop non-alcoholic cannabis-based beverages. The other expands its alliance with a major European pharmaceutical firm. In the meantime, it is entering agreements to supply cannabis across Canada. Still, in the wake of its rising share price, the company needs to generate huge revenue to justify its high market cap.


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TILRAY INC., $70.54, symbol TLRY on Nasdaq (Shares outstanding: 76.5 million; Market cap: $6.7 billion; TSI Cannabis Quality Rating (CQR):  ; www.tilray.com) is a Canadian medical marijuana producer, which began operating in 2013. It also sells related accessories. The company Tilray currently has products available in twelve countries and grow facilities are in Ontario, B.C. and Portugal.

On July 19, 2018, Tilray completed an initial public offering of 10.35 million common shares at $17.00 a share (all amounts in U.S. dollars).

Seattle-based investment firm Privateer Holdings now controls about 82% of the shares (and 93% of the voting power).

Tilray recently entered into a couple of significant partnerships.

The company and Anheuser-Busch InBev SA (ADR) (symbol BUD on New York), the world’s leading brewer, have formed a partnership to research non-alcoholic beverages containing tetrahydrocannabinol (THC) and cannabidiol (CBD).

The link-up aims to combine AB InBev’s broad experience in beverages with Tilray’s expertise in cannabis products. The partnership is limited to Canada and decisions regarding the commercialization of the beverages will be made in the future.

AB InBev’s participation will be through its subsidiary Labatt Breweries of Canada, one of this country’s leading breweries. Tilray’s participation will be through its Canadian adult-use cannabis subsidiary High Park Company, which develops, sells, and distributes a number of cannabis brands and products in Canada.

Each company intends to invest up to $50 million U.S. for a total of up to $100 million U.S.

Tilray has also expanded its alliance with Sandoz AG, a global leader in generic pharmaceuticals. Sandoz is owned by Swiss-based Novartis AG (ADR) (symbol NVS on New York). No dollar amounts have yet been revealed.

In March 2018, Tilray became the exclusive collaborator with Sandoz Canada on cannabis-based medical products which are non-smokable or non-combustible products such as gel caps and sprays for the Canadian market. The aim is to distribute these co-branded products to Canadian hospitals and pharmacies on a wholesale level. The companies hope that the Sandoz logo will help pharmacists, physicians and patients overcome what is still largely a skeptical view of the value of medical cannabis.

The companies have so far co-branded eight oil and capsule medical cannabis products and are joint members of the Common Initiative, a group that’s urging Canada to allow distribution of medical marijuana in pharmacies. Currently it’s only available via mail.

Under the expanded alliance, the two companies aim to increase the availability of high quality medical cannabis products around the world in the 35 jurisdictions where cannabis is, or will be, approved for medical purposes.

Under the new, broader agreement:

  • Sandoz AG may support the global commercialization of Tilray’s non-smokable/non-combustible medical cannabis products
  • Tilray and Sandoz AG may co-brand certain non-smokable/non-combustible products
  • Tilray may supply non-smokable/ non-combustible medical cannabis products and license rights to and from Sandoz AG in relation to such products; Both companies may also partner to offer programs to educate pharmacists and physicians about medical cannabis products
  • Tilray and Sandoz AG may also collaborate to develop new innovative medical cannabis products

Using pro-forma information provided by Tilray, its revenue rose 62.4%, from $12.6 million in 2016 to $20.5 million in 2017. (All figures except share price and market cap in U.S. dollars.) That was due to expanding cannabis production and a 20.5% jump in the average selling price per gram.

The higher revenue help Tilray cut its net losses, from $0.10 a share (or a total of $7.88 million) in 2016 to $0.09 a share (or $7.81 million) in 2017.

In the quarter ended September 30, 2018, the company’s revenue jumped 85.8%, to $10.0 million from $5.4 million a year earlier. That sharp rise was mainly due to increased demand for medical cannabis in Canada and other countries. Tilray sold 1,613 kilograms in the quarter, up 135.8% from 684 kilograms a year ago. However, the average price per gram fell 17.5%.

Despite the higher revenue, Tilray’s losses ballooned to $18.7 million, or $0.20 a share, from $1.8 million, or $0.02. That partly reflects $11.2 million in non-cash stock options granted to employees as the company went public. As well, Tilray continues to invest in new production facilities.

The company ended the quarter with cash of $119.0 million. It has minimal debt.

The Ontario Cannabis Store (OCS) has signed supply deals with 26 cannabis producers, including Tilray. OCS is the government-owned corporation that sells recreational cannabis online. As well, the OCS will supply private stores, starting in 2019. That should expand the availability of cannabis products, and boost demand for suppliers like Tilray.

The company has also lined up deals to supply cannabis to other provinces and territories, including Manitoba, B.C., Nova Scotia, Quebec and Yukon.

In addition, Tilray has deals to supply medical cannabis products to Canadian drug store chains Shoppers Drug Mart and Pharmasave if the federal government grants them the authority to sell.

Tilray’s broadening variety of high-quality customers and well-established international operations give it a big advantage over smaller producers. However, the stock has more than tripled since its IPO. It needs huge revenue growth to justify its current market cap. If its revenue growth stalls, Tilray could drop sharply as momentum traders unload the stock.

Tilray has a 3-Leaf Cannabis Quality Rating (CQR). The stock is a speculative buy for aggressive investors who want exposure to the marijuana industry.

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