The last five years have been terrible for Tilray (NASDAQ:TLRY). The cannabis grower has posted inconsistent financial results in a market that appears to be going nowhere. Tilray shares are down 80% in the past five years. However, that alone doesn't mean it's not worth buying Tilray stock. If the company can find a way to recover, investing now could yield outsized returns for years to come. How will things develop for Tilray in the coming year? Let's find out.
The situation north of the border
Tilray does extensive business in Canada, one of the few developed countries where recreational use of cannabis for adults is legal. However, the Canadian cannabis market has been a mess. It has been difficult for companies to obtain retail licenses, competition is fierce and illegal channels still eat up sales that would otherwise go to legal, established businesses. Despite these challenges, Tilray has made some progress, mainly through acquisitions. It is now the cannabis leader in Canada by market share.
How will things develop in Canada over the next twelve months? It's hard to imagine that things will meaningfully improve for the entire market or that Tilray's position in the Canadian cannabis market will change substantially, although the company could engage in more mergers and acquisitions (M&A). For the most part, investors should expect more of what we've seen in recent years: extremely challenging conditions for cannabis players, making it difficult for even the leaders to consistently deliver strong financial performance. Fortunately for Tilray, positive developments are taking place in other countries, and the company wants to capitalize on these opportunities.
Exciting regulatory developments
Tilray has taken several steps to circumvent the challenging Canadian market. Most notably, it has established itself as a leader in Germany, where it holds the top position among cannabis companies. Tilray did this in part because it anticipated positive regulatory developments in the country. The cannabis grower's strategy recently paid off, with Germany making (somewhat limited) adult use of cannabis legal. According to the company, this move opened a $3 billion opportunity.
Few are in a better position to take advantage of this than Tilray. However, the company has not forgotten the US. Tilray plays a role in the beverage market. A recent acquisition has made Tilray the fifth largest craft brewer in the country. The company plans to take action if the country legalizes cannabis at the federal level. If that happens, Tilray will already have operations in place to capitalize on the potentially lucrative cannabis-infused beverage market.
How will these initiatives develop in the coming year? The German market seems promising, but investors have learned one thing from the Canadian experience: even if a country decides to legalize adult use of cannabis, it doesn't mean the sector will be a huge success. There was already a rising black market for cannabis in Germany. Unless the new law makes it attractive for users to switch to legal channels, it is likely that much of the sales and activity will remain underground.
The new laws in Germany don't exactly make it easy. There won't necessarily be any shops. Those who want cannabis will have to grow it themselves or join a cannabis club (adults can become exactly one member in total). These clubs must adhere to strict rules. Those who grow the substance at home are strictly prohibited from giving it to others, even for free. Those are just a few rules. Is it all that easier than obtaining weed illegally, as many in the country have been doing for years?
Only time will tell what cannabis users in Germany want to do. In my opinion, this market will not contribute much to Tilray in the coming year, nor will there be any legalization at the federal level in the US. could send stocks tumblingdoes not expect the (organic) financial results to improve substantially.
Are Tilray shares a buy?
During its latest quarter, the third of fiscal 2024 ending Feb. 29, Tilray reported revenue of $188 million, up 30% from the same period a year ago. But most of that growth was due to acquisitions. Moreover, Tilray remains unprofitable. Net loss per share for the quarter was $0.12, although that was much better than the $1.90 net loss reported in the same period last year. The market was hardly impressed by Tilray's performance. This will almost certainly remain the case for the next twelve months.
Neither Tilray nor the wider one cannabis industry has shown signs of reversing the ugly trends investors have experienced in recent years. That's why it's best to stay away from stocks.
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Prosperity Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has one disclosure policy.
Where will Tilray stock be in 1 year? was originally published by The Motley Fool
