Is Tilray Stock a Buy in February 2023?

Despite the volatile cannabis sector, Tilray could be a superb buy for long-term investors.

| More on:
Cannabis grows at a commercial farm.

Source: Getty Images

The cannabis sector has been under pressure over the last few years due to the delay in legalizing cannabis at the Federal level in the United States. Besides, growing competition and undercutting by unregulated cannabis businesses have severely hurt the financials of cannabis companies, thus dragging their stock prices down. However, the sector has witnessed healthy buying this year. The Horizons Marijuana Life Sciences Index ETF has risen by 9.2%.

Tilray Brands (TSX:TLRY) is trading 17.2% higher this year. Let’s see whether the rally can continue by looking at its second-quarter performance and growth prospects.

Tilray’s second-quarter performance

Tilray posted revenue of US$144.1 million for its second quarter fiscal 2023, representing a 7% decline from the previous year’s quarter. The decline in its cannabis and distribution business offset a 56% increase in its beverage alcohol business, dragging the company’s top line down. Additionally, the strong U.S. dollar negatively impacted revenue.

Despite the decline in revenue, the company’s gross profits increased by 22% to US$40.1 million amid several cost-cutting initiatives. Its adjusted net losses improved from US$38.8 million to US$35.3 million. Meanwhile, when most cannabis companies are struggling to become profitable, Tilray has posted an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $11.7 million, marking the fifteenth quarter of positive adjusted EBITDA. Overall, the company’s financial position looks healthy, with its cash and marketable securities at $433.5 million as of November 30.

Now, let’s look at its growth prospects.

Tilray’s growth prospects

The legalization of recreational cannabis at the federal level in the United States and European Union could be a significant growth driver for Tilray, given its substantial presence in these regions. Amid the recent legalization by Maryland and Missouri, the number of U.S. states that have legalized recreational cannabis has increased to 21 states. Further, around 37 states have legalized cannabis for medical purposes. Amid the market expansion, Allied Market Research expects the global cannabis market to grow at a CAGR (compounded annual growth rate) of 20.1% to reach US$148.9 billion by 2031.

Tilray, a market leader in the Canadian recreational cannabis market with a market share of 8.3%, is looking at further strengthening its position. It utilizes its proprietary consumer research to understand and meet customers’ needs. The acquisition of convertible debt in MedMen, a multi-state operator in the United States, is part of its U.S. expansion. The cannabis retailer will allow Tilray to introduce its products once the federal government legalizes cannabis.

Additionally, Tilray has acquired a strong presence in Germany and Portugal through its subsidiary, CC Pharma. The company’s management plans to utilize the infrastructure to expand its footprint across the European Union. Also, the German government is hopeful of legalizing recreational cannabis by 2024, thus offering substantial growth prospects for the company.

Supported by its recent acquisitions, Tilray’s beverage-alcohol sales grew by 56% in the November-ending quarter. The diversifying company expects to maintain its growth by acquiring Montauk Brewing Company. So, the company has multiple growth drivers.

Cannabis market growth

I expect the cannabis sector to be volatile in the near-to-medium term due to federal legalization delays and stiff competition from unregulated businesses. However, investors with higher risk tolerances and longer-investment horizons can accumulate TLRY stock to earn superior returns, given its multiple growth drivers and discounted stock price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Cannabis Stocks

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Why This Little-Known Cannabis Stock Could Double in 2024

This cannabis stock has already doubled this year since 52-week lows and could easily rise that much once more.

Read more »

Bad apple with good apples
Cannabis Stocks

1 TSX Stock I Wouldn’t Touch With a 420-Foot Pole

Down 87% from all-time highs, Cronos Group stock is a still a high-risk investment for long-term shareholders in 2024.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth: Buy, Sell, or Hold?

Canopy Growth (TSX:WEED) stock should make a killing on U.S. expansion, but investors will need to be very patient.

Read more »

Marijuana plant and cannabis oil bottles isolated
Energy Stocks

3 Canadian Value Stocks to Buy Right Now

Undervalued Canadian stocks such as Secure Energy should be part of your shopping list in May 2024.

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Here’s Why it’s Not Too Late to Buy Cronos Group Stock

The optimism about U.S. federal marijuana legalization and its anticipation are potent bullish triggers for the Canadian cannabis industry.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Canopy Growth Stock Is on a Tear: Is it a Good Buy Now? 

Canopy Growth (TSX:WEED) stock surged by 80% from news out of the U.S., but is enough there without the news…

Read more »