Last week Tilray (NASDAQ:TLRY) had a rollercoaster ride. The share price began the week at $30.09. Then, as it became the second largest short in the cannabis sector (according to S3 Partners) as merger arbitrage traders built positions after Tilray’s announced merger with Aphria (NASDAQ:APHA), the Reddit traders weighed in. Shares jumped, peaking at $63.91. Then, by Friday the share price was back to where it started the week at around $29 per share.
The jury is still out as to whether it was a ‘Reddit bump’, and while there’s no disputing the power of over 9 million traders that make up the r/WallStreetBets community, judging by the Q4 and full year results just in, it looks like Tilray has weathered the storm.
Founded in 2013, British Columbia-based Tilray cultivates, produces and distributes medical cannabis and cannabinoids. At the end of 2020, the company announced a merger with another cannabis company, Aphria, to create what they call the largest global cannabis company. Aphria will become a wholly-owned subsidiary of Tilray, with Aphria shareholders owning approximately 62% of Tilray.
The US is one of the biggest potential legal cannabis markets in the world and we like that the merger will give Tilray the opportunity to distribute their products in the US, through Aphria’s SweetWater craft brewing company, as well as Tilray’s Manitoba Harvest company which was acquired in 2019.
Tilray not yet in positive territory
Total revenue increased 26% to $210.5 million during 2020 from $167.0 million in 2019. The increase was driven by $26.5 million or 25% growth in the Cannabis segment, and $17.0 million or 28% growth in the Hemp segment. The Hemp segment increase was partially due to the timing of the Manitoba Harvest acquisition in 2019 which resulted in 10 months of sales in 2019 compared to 12 months in 2020.
Adjusted EBITDA improved to a loss of $30.3 million compared to a loss of $89.8 million in the prior year. The improved loss is primarily due to cost reduction measures and operating efficiencies undertaken during 2020, says Tilray, as is the increase in gross margin to 12% from 14% in 2019.
Earnings for Q4 2020 inched into a profit with Adjusted EBITDA of $2.2 million. However, it was a $37.5 million improvement compared to the $35.3 million loss in Q4 2019 and a $3.7 million improvement versus the $1.5 million loss in Q3 2020.
Tilray is setting its sights on Europe
We think Tilray is heading in the right direction and what we find particularly interesting is Tilray’s budding relationship with Europe. The last two months has seen Tilray announce its first export of medical cannabis to Spain and receive the first and only market authorisation to offer medical cannabis products in Portugal. It has also been selected to supply GMP-certified medical cannabis products in France, promote medical cannabis extracts in Germany and, in the UK last week it announced an agreement with Grow Pharma to import and distribute Tilray’s medical cannabis products into the UK.
While Tilray’s foray into Europe is still relatively small scale and some of these projects have been in the pipeline for a couple of years, perhaps it’s a sign that there is an acceleration of regulatory changes in Europe.
Last week’s rally and subsequent massive fall in Tilray’s share price proves that, Reddit bump or not, with $261.3 million cash in the bank as of February 16, 2021, Tilray is positioning itself to seize every opportunity.