Tilray (NASDAQ:TLRY) Beat Revenue, So Why Did It Miss on Earnings?

Tilray

Yesterday, Rich discussed the Q3 earnings from MediPharm Labs Corp. (TSX:LABS) (OTCQX:MEDIF). Always a leader in the sector, MediPharm posted some big numbers, particularly in revenue.

Today, it’s Tilray Inc.’s (NASDAQ:TLRY) turn to report earnings from its third quarter of 2019. As Rich notes, Tilray is a global giant, positioned in 13 countries. It serves tens of thousands of patients across the globe. As a result, its quarterly reports tend to impact the sector in big ways.

Let’s dig through the report.

Tilray’s Revenue is Up

The big takeaway from the earnings report comes from the twin surprises in earnings and revenue.

For the three months ended September 30, Tilray posted $51.1 million USD ($67.8 million CAD) in revenue. Not only did this beat the Zacks Consensus Estimate by 3%, it represents a 411% year-over-year growth. The company has topped consensus revenue estimates three times over the last four quarters.

Of Tilray’s revenue, $15.7 million comes from hemp products as a result of its acquisition of Manitoba Harvest earlier this year. An additional $15.8 million comes from the sale of recreational cannabis. Revenue from medical cannabis, which is sold internationally, increased to $5.7 million from less than $1 million a year ago.

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Ultimately, the company sold the equivalent of 10,848 kgs of cannabis, up 573% from last year.

But Earnings are Down

Despite the incredible growth in kilograms sold, the average price per gram came out to $3.25. In 2018, a gram of cannabis retailed for $6.21, so this year’s price represents a 48% drop from last year.

As a result, Tilray posted a net loss of $35.7 million for the quarter, or $0.36 per share. This missed a Zacks Consensus Estimate of $0.29 in losses per share. In 2018, the company posted a loss of $0.08 per share, meaning the company’s losses are widening.

In a sector where investors are starting to demand profit, this does not spell success for the Nanaimo-based cannabis producer.

Thus far in November, TLRY shares are pretty much breaking even, but the stock has lost nearly 70% of its value from the start of the year. TLRY remains one of the highest-priced cannabis stocks, but will it remain that way for long?

Tilray’s Forecast

Tilray’s President and Chief Executive Officer, Brendan Kennedy, said in a statement to investors:

“We are in the early days of seeing our strategic initiatives bear fruit—including our European expansion, brand portfolio evolution, and strategic partnership product launches. We continue to expect significant growth in the fourth quarter and into 2020.”

Current consensus estimates put Tilray’s revnue at $172.60 million for the 2019 fiscal year. This would result in a loss per share of $1.09.

The decline in earnings, due in large part to the drop in the cost of cannabis, is part of a larger trend of sliding pot prices. Cronos Group (TSX:CRON) (NASDAQ:CRON) also struggled with earnings this quarter for the same reason.

Kennedy told MarketWatch that his company is always on the lookout to acquire more high-quality cannabis. To this end, Tilray will look to finish its acquisition of Four20, an adult-use cannabis retailer in Calgary.

The company also signed a deal with a German corporation to supply it with $3.3 million worth of cannabis.

Kennedy added in his statement to investors:

“Our strong global infrastructure and supply chain are a critical competitive advantage and our team is focused on maximizing the substantial opportunity we have to deliver long-term, sustainable value to our shareholders.”

What do you think? Is TLRY a good play? Or are its widening losses too big of a concern? Let us know your thoughts.

Featured image: Canva

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