Tilray Sees a Big European Market for Its Cannabis

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Tilray is looking beyond Canada’s dismal cannabis market as marijuana legalization expands around the world. Germany looks like a big prize.

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Tilray aims to grow from Canada’s dismal cannabis market to become a competitor as marijuana legalization expands around the world. Reporting its November 2021 quarter, the company reported increased international sales, even as its revenues faced price competition in a major Canadian market.

Tilray (ticker: TLRE) stock rose 18% to $7.57 in trading Monday, as the company announced a new name: Tilray Brands. Thanks to last year’s merger of the Aphria business with Tilray, sales grew nearly 20% to $155 million in the November quarter. But that’s accounting for continued operations of the business: Individual companies’ pro forma sales were actually higher — about $180 million, in the year-ago period. At that time Tilray was losing money badly. The November 2021 quarter showed a small profit, even though free cash flow was negative.

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“Our team is performing admirably in some tough conditions,” CEO Irwin Simon said on a lengthy conference call Monday morning. Irvine said, COVID-19 continued to smother demand for medical marijuana in Canada, while that country’s supply and glut of brands eroded Tilray’s gross margin and market share.

Simon’s team is cleaning up operations of the old Tilray business, and the November 2021 quarter saw balance-sheet adjustments for erroneously acquired goods and charges for product that cost Canada more than sales prices. But the synergies from the Aphria combination will cut $80 million in annual cost savings by the end of the company’s May 2022 fiscal year, financial chief Carl Merton said, and another $20 million in the next fiscal year.

Tilray reported net income for the November quarter of $6 million, and earnings before interest, taxes, depreciation, and amortization of $14 million. However, that Ebitda number has been adjusted to exclude a raft of costs for write-downs, transactions, startups and closures. Free cash flow in the quarter was negative $15 million.

The company spoke eagerly about opportunities in Europe, where Germany and Portugal enjoy strong shares of the medical-cannabis markets. Germany’s upcoming government coalition has agreed to legalize recreational adult use. This would make Germany the world’s largest federal legal market, and the rest of Europe would eventually follow its lead, said Tilray’s head of international trade, Dennis Faltysch. “We expect medical cannabis to be legalized across Europe in the next 10 to 12 months,” she said.

In the US, Tilray is acquiring alcoholic-beverage businesses, which may be expanded with cannabis-infused products whenever the US federal government gets around to legalizing cannabis. Simon said beer and wine drinkers are also cannabis users. The company has also acquired a controlling position in the debt of US cannabis retailer MedMen Enterprises.,
Tilray will continue to look for cannabis-adjacent products in the US, Simon said, without waiting for federal legalization.

Traders welcomed Tilray’s November results by raising their shares on Monday, which has continued to decline with the cannabis sector. The company expects many of its struggling Canadian rivals to get out of the way.

Still, it’s been tough for Simon’s shareholders. “There’s a lot of disappointment out there,” he told the audience on Monday’s call.

Write to Bill Alpert at [email protected]


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