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Tilray Inc. shares on Monday gained back some of their recent losses after the Canadian cannabis producer posted a narrower-than-expected loss and played up its prospects for expansion into Europe and in beverages.
Tilray CEO Irwin Simon told MarketWatch the company would consider acquisitions of companies that will add to earnings, but not businesses that are burning cash. M&A deals could help Tilray achieve its target of 20% to 30% market share in Canada.
“There’s got to be consolidation in the Canadian market because there are just too many LPs (licensed producers),” he said. “The question is whether an acquisition would be synergistic.”
Simon said he’d rather issue equity to buy an accretive company, than issue fresh debt. “I’m not a big proponent of debt…partly because I’m conservative and interest rates could go up,” he said. “Debt has to be paid back.”
Turning to the company’s second-quarter results, Tilray
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said it lost $201,000 or zero cents a share, compared to a loss of $99.9 million, or 41 cents a share, in the year-ago period.
Revenue increased to $155.15 million from $129.46 million.
Analysts expected Tilray to lose 9 cents a share on revenue of $170.5 million, according to a survey by FactSet.
Shares rose 3.6% to $7.28 on Monday, despite losses in the broad equities market. Prior to the gains, the stock had lost about 9% thus far in 2022 and is down 43% in the past 12 months.
The cannabis company is changing its name to Tilray Brands Inc. as it diversifies into beverage and other consumer packaged goods.
On a conference call with analysts, Tilray said it would expect to benefit from potential legalization of adult-use cannabis in Germany. It’s also seeing growth from its beverage brands, which include Sweetwater Brewing.
But the company said it’s still facing challenges of oversupply in the Canadian market as well as the impact of the omicron coronavirus variant.
In another plus, Tilray said cost savings from its acquisition of Aphria will be $20 million more than expected, or a total of $100 million. The company has achieved $70 million in cost savings to date, and is on track to achieve its original cost reduction plan of $80 million ahead of schedule. It will generate the additional $20 million of synergies in fiscal 2023.
Simon said the company maintained it is No. 1 market share position in Canada despite “market saturation” and related competitive challenges, according to a prepared statement.
“In Germany — Europe’s largest and most profitable medical cannabis market — our nearly 20% share leads the market,” he said. “We believe this, coupled with our infrastructure, will also allow us to capture the adult-use market as legalization accelerates under the new coalition government.”
In the U.S., Tilray’s alcoholic beverages brands SweetWater Brewing and Manitoba Harvest generate earnings and continue to invest in products and acquisitions, he said.
“These profitable businesses further provide an opportunity to launch THC-based products upon federal legalization in the U.S.,” Simon said.
On the company’s quarterly conference call, Simon said he doesn’t expect U.S. legalization this year or even next year, but meanwhile, the company is growing its footprint in the country.
During the quarter, the company expanded its spirits portfolio through the acquisition of Breckenridge Distillery. If cannabis becomes federally legal in the U.S., Tilray would weave THC with alcohol into these products.
