Pacific Trader: Is now the time to buy Tilray, after the cannabis sector’s great shakeout?

Tilray has announced its intention to become the leading supplier to the U.S. market (eventually) and to control 30 per cent of the Canadian market by 2024.

Credit: Tilray

Tilray acquired an interest in California retailer MedMen in August

It’s already the largest global operator in a sector that’s proving neither quite as big nor as lucrative as some once thought

The stock: The irrational exuberance that greeted the legalization of recreational cannabis use in Canada came to an end. The painful retrenchment that followed will, too, to be replaced, we hope, by a more clear-eyed investment thesis based on actual sales and growth. And when that happens—any day now!—the likeliest survivor could be the world’s leading cannabis cultivator, with a 16-percent share of the Canadian market (the legal one, anyway), Tilray (TSX, NASDAQ:TLRY).

The drivers: Nanaimo-based Tilray just released its first-quarter 2022 results, its first fully incorporating its merger with Leamington, Ont.-based Aphria in the spring. Net revenue was up 43 percent year-over-year, to US$168 million, but the net loss was also up, to US$34.6 million, or 8 cents a share. Gross income and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are both positive, however, and headed in the right direction.

In August, Tilray led a group of strategic investors in acquiring US$165.8 million in convertible debt and warrants of MedMen Enterprises (CSE:MMEN), which could enable the grower to secure a “significant equity position” in the California-based retailer and a key foothold in the estimated US$80-billion U.S. cannabis market as legalization there inches forward.

Tilray has announced its intention to become the leading supplier to the U.S. market (eventually) and to control 30 percent of the Canadian market by 2024. It also has a significant presence in the medicinal market in Germany. Its shares closed at $12.82 on the TSX on Tuesday.

Word on the street: Analysts were underwhelmed by the latest numbers, with many resetting their targets for the company lower. Absent the Aphria merger, Canaccord Genuity analyst Matt Bottomley noted, Tilray’s legacy business was “flat to modestly higher on an apples-to-apples basis.” But the reset may also indicate a decent entry point in the near future.

Coming and going: New York–based alternative investment firm Stonepeak has reached an agreement to take over Vancouver-headquartered, Bermuda-registered shipping concern Teekay LNG Partners (NYSE:TGP) from controlling shareholder Teekay Corp. (NYSE:TK) for US$6.2 billion following a strategic review.