Shares of Canadian cannabis company Tilray Inc. jumped 26% Wednesday, after the company posted a surprise profit for its fiscal fourth quarter, in its first earnings report since it closed its merger with Aphria Inc. in May.
The newly combined company
the world’s biggest cannabis company measured by revenue, posted net income of $33.5 million for the quarter to May 31, or 18 cents a share, after a loss of $84.3 million, or 39 cents a share, in the year-earlier period.
The profit was driven by $121.5 million in net non-operating income that was booked due to an unrealized gain on the company’s convertible debt. That was driven by a change in the share price and change in the trading price of the bonds. Tilray stock is down about 16% in the last three months.
Revenue rose to $142.2 million from $113.5 million a year ago.
The FactSet consensus was for a loss of 12 cents a share and revenue of $199 million, although at least one analyst, Cantor Fitzgerald’s Pablo Zuanic, said ahead of the release that the consensus numbers appeared to offer an “apples to oranges” comparison. The numbers were based on 13 weeks of pre-merger Aphria numbers and four weeks of post-merger Tilray.
Chief Executive Irwin Simon said the company was happy to achieve a profit during a pandemic, with stores in Canada closed and much of Europe in shutdown.
“It’s our intention to profitable and cash flow positive,” he said. Tilray generated free cash flow of $3.3 million in the quarter.
On a conference all with analysts, Simon set out a goal of achieving $4 billion of revenue by 2024, which assumes full legalization of cannabis in the U.S., along with organic growth, acquisitions and partnerships.
“Beyond what we have achieved over the last six months, our perseverance during COVID crisis itself lends further validation to the fact that this team knows how to pivot, execute and get results,” he said, according to a FactSet transcript. “Consider at the highest level, we lost well over $100 million in revenue as a result of retail store closures and COVID general impact. And yet, we immediately implemented cost saving measures, ultimately helping us build EBITDA to more than $40 million in 2021.”
Cantor’s Zuanic lauded the “ambitious vision” offered on the call, although he said the stock action may have more to do with a short squeeze. Tilray has become one of the “meme” stocks tracked closely by investors on Reddit forums. Still, the analyst reiterated his overweight rating on the stock, the equivalent of buy, and a $19 price target that’s 19% above its current price.
Fourth-quarter revenue was boosted by 36% growth in cannabis revenue to $53.7 million, which included a 10% decline in distribution revenue, net beverage alcohol revenue of $15.9 million following the SweetWater acquisition on Nov. 25, 2020, and wellness revenue of $5.8 million from Manitoba Harvest, the company said in a statement.
Tilray’s presence in the U.S. market is through SweetWater, a cannabis craft beer brewer, and Manitoba Harvest, a hemp, CBD and wellness products maker that has access to 17,000 stores in North America.
Tilray remained loss-making on a full-year basis, recording a loss of $336 million, wider than the loss of $100.8 million posted in fiscal 2020. The loss was driven by $63.6 million in transaction costs, following its merger with Aphria, and $170.5 million of non-cash unrealized loss on convertible bonds.
The company has achieved $35 million in synergies on the Aphria deal and expects to reach its goal of about $80 million within 18 months of closing.
Other targets set for 2024 including growing the company’s Canadian market share to 30% from about 16% currently, said Simon.
“Strategic partnerships with provincial boards and retail partners, we have strong relationship with the provincial boards across the country and retail partners,” he told analysts. “We will continue to create merchandising and education platforms for bud tenders and consumers to drive brand loyalty to our portfolio. Both of these strategies will drive absolute growth in the Canadian market.”
Simon conceded that Canadian legalization has not been the bonanza some had hoped, which he attributed to the fact that it was really “quasi-legalization.” Restrictions on such activities as advertising have made it challenging to develop brands and brand loyalty, and the company is lobbying the government to include medical cannabis in healthcare plans.
In the meantime, Tilray is working to educate doctors on the benefits and safety of medical cannabis, and its own investors, the vast majority of them retail investors, on its products.
“We’re using that base to ensure they know our products. Why not buy the product and the stock?” Simon said. “We have to educate consumers about the benefits of adult-use cannabis too. There’s still a lot of hesitancy.”
Simon is expecting the U.S. to legalize cannabis through some bill in the next two years and the company will look to expand the Manitoba business with a deal in the food area, and Sweetwater with a deal in alcohol or beverages, as well as to make option-based deals with a multistate operator.
Some European companies may legalize before the U.S. and Irwin is expecting Germany, which has a large medical cannabis program, to be a leader.