Tilray, Inc. is a company that focuses on the research, cultivation, production and sale of medical cannabis. The company has been on a recent acquisition spree as it looks to grow its portfolio of products and services.
Tilray, a company that specializes in cannabis, has been on the market for several years. The company has had some recent success with their IPO and is now seeing acquisition talks.
Although the company’s merger with Aphria was completed in May, investors should not rule out the possibility of another in the near future.
Tilray (NASDAQ:TLRY), a cannabis business, is aiming for $4 billion in annual sales by 2024. For a business with a run rate of less than $700 million, it still has a long way to go to meet that goal.
The company’s aim of dominating Canada and achieving a 30% market share in the nation is critical to its success. That would be a considerably greater slice of a pie that is only growing bigger as the marijuana business develops, according to Tilray’s own estimate of 16 percent. Organically achieving that would be a reach at best, which is why, assuming Tilray is serious about its objective, at least one major purchase is still probable in the next year or two.
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To meet only its target for the Canadian market, Tilray would have to quadruple its sales.
Tilray’s top line would have to more than quadruple to get 30% market share in Canada. Although it claims to have a 16 percent market share today, analysts at Stifel believe it is more likely to be around 12 percent. In any case, there’s still a long way to go.
In addition, the market in Canada will expand. The Canadian marijuana industry is expected to expand at a compound annual growth rate (CAGR) of 26 percent until 2025, when it will be worth $6.1 billion, according to analysts at cannabis research firm BDSA. If that prediction is accurate, the market may be worth $4.8 billion by 2024. Tilray would need to earn close to $1.4 billion to reach its objective at that pace.
It’s a goal that may not be achievable without the assistance of acquisitions. No Canadian marijuana business has ever approached $1 billion in yearly sales, much less $1.4 billion. That’s why, if Tilray is serious about achieving its objective, at least one more major purchase in Canada should be expected.
The business has a number of prospective bidders to evaluate.
Tilray grabbed one of Canada’s leading marijuana growers when it bought Aphria. And, if it wants to speed its expansion, it would most likely seek out another big corporation. The following are some of the larger cannabis growers that the business may look into:
- Aurora Cannabis (NASDAQ:ACB), which has made 245 million Canadian dollars in the last year. Tilray’s net losses over that period were almost CA$700 million, so fixing the company would be a challenge, but it would be a fast way to boost its top line.
- Sundial Growers (NASDAQ:SNDL) is a lot smaller firm, with just CA$46 million in sales last year, but it has recently made several significant acquisitions, including two in the retail sector, and is now a considerably larger company.
- Charlotte’s Web (OTC:CWBHF) is a major hemp grower with operations in both Canada and the United States. Tilray’s hemp position would be strengthened, as well as additional source of income south of the border. Tilray just purchased convertible notes from MedMen, a multi-state operator, but it can’t convert them or control the business just yet since marijuana is banned in the United States. Hemp, on the other hand, is federally allowed, and Charlotte’s Web would allow Tilray to quickly expand its sales in both nations. Charlotte’s Web has made $100 million in revenue over the last four quarters.
These are just a few of Tilray’s more appealing choices right now. And one simple lesson from all of this is that one transaction is unlikely to be enough for Tilray to meet its goal. To achieve this objective, it would very certainly need to make several purchases.
Dilution is a possibility for investors.
There are a lot of acquisitions, but there are also a lot of share offers. The purchase of Aphria was an all-stock deal, and there’s no reason to believe that future acquisitions won’t be structured similarly. Tilray has burnt through $82 million in cash in the last year simply from operational operations, and it isn’t in a strong enough financial position to invest capital in an acquisition.
This puts investors in a dilemma since, although acquisitions might help Tilray reach $4 billion in sales, they would almost certainly need substantial share issuance and dilution along the way, potentially negating any gains in the price. And that’s one of the main reasons I’d stay away from this stock.
While there is potential for some profits (if Tilray meets its goals), investors should be cautious of the danger of dilution. Acquisitions may boost a company’s revenue, but they can also make it tough to prevent substantial losses and cash burn. Cannabis investors would be better suited looking at the industry’s more attractive growth companies.
Tilray is a company that has been on the market for a while, but recently they have experienced an increase in popularity. The should i buy tilray or aphria is a question that many people are asking themselves.
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