Tilray is a Canadian cannabis company with operations in the US, New Zealand, Australia, Europe, Africa, and Latin America. It is the first GMP-certified medical cannabis producer to supply cannabis flower as well as extracts to patients, pharmacies, governments, physicians, hospitals as well as researchers in 17 countries across five continents. All of this sounds pretty impressive but it hasn’t stopped the company’s stock falling from $29.21 on February 15 to $16.46 on April 23, a drop of 43.64%. The reason for that was a drop in sales in the fourth quarter of 2020. Historically, Tiray has been a strong contender in the cannabis space but is Tilray stock a good buy after its 44% fall?
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Tilray’s M&A Activity
Aphria and Tilray are on the verge of becoming the world’s largest cannabis company with combined revenues of around $685 million. And that is what investors should be looking at. There are a lot of numbers being thrown around about but none of them will matter once the merger takes place.
It was in December 2020 that Tilray announced a mega-merger deal with Aphria. The deal is said to come through in the second quarter of 2021, and save $78 million in costs every year.
A Mixed 2020 for Tilray
Other than the merger with Aphria, Tilray had a few other things going in its favor. It saw revenue growth of 26% in 2020 when compared with 2019. The company managed to get its net loss down to $3 million in Q4 of 2020 compared to a loss of $219.8 million in the prior-year period. It had $189.7 million in cash on December 31, 2020, and $261.3 million in cash as of February 16, 2021.
Total cannabis sold for the whole of 2020 decreased 17% compared to 2019 generally due to a reduction in bulk sales. The average net selling price per gram increased by 51% in 2020 to $4.57 compared to $3.01 in 2019 due to an increase in international medical sales and cannabis 2.0 products.
The company’s administrative and general expenses fell from 66% to 41% while the sales and marketing expenses contracted from 38% to 26% of revenue. This indicates that the management efforts to cut costs in the last three years are beginning to bear fruit. But does this make Tiray stock a good buy?
What Next for Tilray Stock?
The problem with the Canadian cannabis market is that it is simply oversupplied. Further, European markets including Germany has recently rejected the legalizing of recreational cannabis which is why pot growers are relying solely on the US market for its expansion.
And that is why the Tilray-Aphria merger is so important. The legal marijuana market in the US was estimated at $13.6 billion in 2019 according to New Frontier Data and is expected to grow at a CAGR (compounded annual growth rate) of 21% to hit more than $41 billion by 2025.
The rewards of this merger will be enormous and Aphria shareholders have already voted in its favor. Tilray shareholders will vote on April 30 and Aphria CEO Irwin Simon is confident that the vote will go through.
In an appearance on CNBC’s Squawk on the Street, he said, “We will get the vote done, I’m very confident of that. As I’ve said before, the merger of the two companies will be great for both sets of shareholders. And when the legalization of cannabis does happen, the new Tilray will be ready to make a major entry into the US markets.”
The new company is looking at plays beyond North America. Simon said that he wouldn’t be surprised if Europe legalized marijuana before the US. He said, “The problem is today, we don’t know what legalization is today and what it will look like, so I’d rather pay more to have a good view and look through the partnership that we want to be a part of.”
Bottom Line: Is Tilray Stock a Good Buy After its 44% Fall?
Analysts expect a high between $25-$32 for Tilray stock. However, a lot of them have suggested a ‘hold’ on the stock until the vote. Waiting a little could cause a dent in your profits. If the merger vote goes through, and there is little reason why it won’t, the stock might experience a sudden surge. Is it worth buying Tilray stock now that it’s on sale? If you’ve got an appetite for risk with a nice potential upside then it sure is.
Is Tilray Stock a Good Buy After its 44% Fall?
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