Is Tilray Stock a Buy After Q3 Results?
Cannabis stocks have been on a roll in November after four US states legalized sales of recreational cannabis coupled with the news of the new President-Elect, Joe Biden. The Democratic Party continues to be much more vocal on decriminalizing recreational marijuana in the country. Amid the news, stocks like Tilray (NASDAQ:TLRY), the first pot company to debut on a major U.S. stock exchange, are back on the radar for cannabis investors. But is Tilray a buy after Q3 Results?
Tilray: Q3 Results by the Numbers
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While revenue for the company was almost the same at $51.4 million in Q3 compared to $51.1 million in the prior-year period, Tilray reduced its losses by a significant margin when compared to Q1 and Q2 of 2020.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in Q3 improved to a loss of $1.5 million, compared to a loss of $12.3 million in Q2, an improvement of 87%. The cannabis company’s Q1 EBITDA losses were $18.7 million.
The pot producer predicts that it will start turning profits from the fourth quarter of 2020. However, it comes with a caveat. Tilray was expected to increase international medical sales in Q3 compared to Q2 but this number was flat.
The Company says this is due to two unexpected setbacks. The first one was when cannabis imports to Germany were curtailed, market wide, due to quotas by the International Narcotics Control Board. The second one was that there were COVID related administrative delays for import permits on products entering Germany.
Tilray has cash and cash equivalents totaling $155.2 million at the end of the third quarter 2020. The company also has access to an additional $209 million in capital and it says that these balances are “…expected to provide sufficient capital and access to capital to manage operations and execute plans for the remainder of 2020 and well into 2021.”
Sure, this is all pretty good news but is Tilray stock a buy?
Q4 Prediction: Looking Beyond North America
German Chancellor Angela Merkel has already warned of a long, hard winter for the country lockdown has been reinstated. The rest of Europe too has imposed harsh lockdown measures as the second wave of the Covid-19 pandemic is proving more brutal than the first one.
For Tiray, international medical sales in Q3 came in at $8.1 million, making up around 15% of the total revenue. This may impact on revenues as the EU market may remain volatile in the coming quarters due to recently reimposed COVID restrictions.
Bulk sales totaled $10 million in Q3 of 2019 but Tilray didn’t have any bulk sales in Q3 of 2020 which explains the near stagnant revenue. Total cannabis kilogram equivalents sold decreased 53% to 5,107 kilograms in the September quarter from 10,848 kilograms in the prior year’s third quarter. The decrease was due almost entirely to the reduction of bulk sales.
What next for Tilray stock investors?
Well, Tilray is building a cultivation facility in Portugal and is expected to complete it by the end of 2020 well within the original budget of around $33 million. This gives it a ‘first mover’ advantage in international markets as countries continue to legalize hemp and cannabis.
While this would have been great news in normal circumstances, it could turn out to be an idle asset if the pandemic is not brought under control. However, with several promising Covid-19 vaccines in the works, we hold promise in the new market. This new facility in Portugal may help Tilray improve gross profit margins as the taxes levied on European sales will be significantly lower.
Tilray stock has seen a high of $23.8 in the last 52 weeks. Since October 30, the stock has shot up to $10.79 before settling at current levels of ( ). By all appearances, this cannabis stock is not out of the woods yet and remains a contrarian bet.
Much of Tilray’s business depends on the measure’s countries implement to combat the pandemic. It’s not a very healthy situation to be in. You may want to wait until the Q4 numbers are out before taking a position in Tilray.
Is Tilray Stock a Buy After Q3 Results?
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