Will Tilray become top dog?

Major pot stock Aphria (NASDAQ:APHA) has been given the green light from shareholders to acquire Canadian rival Tilray (NASDAQ:TLRY). This puts the wheels in motion for the world’s largest pot stock by revenue to take shape. Tilray shareholders still have to agree, but it’s looking increasingly likely. If the reverse takeover goes ahead, the new entity will be known as Tilray. But it will be Aphria’s CEO leading the new company and Aphria management will hold seven of the nine board seats.

Aphria is dual-listed on the Toronto Stock Exchange and NASDAQ. Meanwhile, its closest rivals in the Canadian markets are Canopy Growth and Aurora Cannabis.

Growing acceptance

The medical marijuana sector has been gaining acceptance throughout the US and UK. And now pressure’s rising on Europe to better regulate it too. Hence, the region is gaining global appeal as the next market to expand into.

The Aphria/Tilray merger would put it in a powerful position to make inroads into the European sector. That’s because Aphria already has assets in Germany, while Tilray has a facility in Portugal.

In November, Aphria acquired SweetWater, an American craft beer company for $300m. Meanwhile, Tilray has also begun building a US presence through its acquisition of Manitoba Harvest. These brands should make it easier for the new company to expand throughout the US.

There’s also greater interest in pot stocks with anticipation the Biden administration will decriminalise the sector at the federal level.

Share price volatility continues

Aphria’s share price fell this week after Q3 sales and earnings per share came in lower than expected. This was due to Covid-19-related costs and loss of revenues from physical store closures.

Long-term risks shareholders should consider include the highly competitive landscape and the costs in distribution and running physical stores. A lot will depend on how long it takes for US states to legalise, for decriminalisation to come from the federal level, and how quickly Europe rolls out their medical marijuana regulatory framework. This could all take some time. Then there’s Covid-19, which may continue to cause disruption.

Should I buy Tilray or Aphria stock before the merger?

If I buy 100 Tilray shares today, it will cost me approximately $1,770. And, if I buy 100 Aphria shares today, it will cost me approximately $1,400.

Aphria may seem the obvious choice, as it’s cheaper, but when the companies merge, my Aphria shares will be converted at a rate of 0.8381. This means I would have approximately 83 shares of the new company. Whereas the number of Tilray shares I would own would stay the same. So, it very much depends on the share price at the time of purchase.

As long as the company can continue to make sales and expand, then the growth story could continue to be great for keeping the share price buoyant. But, I’d prefer to wait and see what the new company looks like after the merger goes through before investing.

The post 1 US pot stock I might buy appeared first on The Motley Fool UK.

Investors interested in marijuana stocks are breathing sighs of relief that October is over. Most marijuana stocks took a beating during the month. The biggest marijuana stock winner so far this year, Tilray (NASDAQ:TLRY), saw its share price plunge 34% during October. Not every marijuana stock suffered, though. MariMed (NASDAQOTH:MRMD), for example, gained nearly 19% — the second best performance among marijuana stocks in the month.

But October is in the past. Which of these two marijuana stocks is the better pick for the future? Here’s what you need to know about the prospects for Tilray and MariMed.

IMAGE SOURCE: GETTY IMAGES.

The case for Tilray

Tilray’s opportunities start right at home in Canada. The cannabis producer has already carved out a solid position for itself in the country’s medical marijuana market. Tilray has some help. The company teamed up with Sandoz Canada, a subsidiary of Novartis, to market medical cannabis products throughout Canada. 

An even greater opportunity lies in sales of recreational marijuana throughout Canada. Although the country’s recreational marijuana market got off to a bumpy start with widespread product shortages, those wrinkles will probably be soon ironed out. Tilray should enjoy big sales growth as supply chains stabilize. When regulations for cannabis edibles and concentrates are finalized, presumably next year, the company’s revenue will almost certainly receive another nice boost.

But Tilray has its sights set beyond just the Canadian market. It was the first company to export medical cannabis to Australia and New Zealand. It was the first to export medical cannabis to Europe. It was the first — and so far only — company approved to supply both cannabis flower and cannabis oils to Germany, the most important international marijuana market outside of North America. 

Tilray’s recent acquisition of Chilean medical cannabis producer Alef Biotechnology bolsters its position in Latin America. Alef was already an import partner for Tilray. The acquisition, though, gives Tilray a hub to distribute medical cannabis throughout Latin America. 

A major prerequisite to capitalize on expanding marijuana markets is production capacity. Tilray should have 912,000 square feet of growing space by the end of this year, including its production facilities in Canada and Portugal. But Tilray also claims around 3.8 million square feet of expansion potential.  

The case for MariMed

MariMed is about as different from Tilray as night is from day. But its growth prospects are as bright as daylight.

The company provides a range of services to the U.S. cannabis industry. MariMed designs and builds medical cannabis production facilities and then leases them to customers. It helps customers obtain necessary licensing. It offers consulting services to assist existing cannabis businesses expand.

On top of all of this, MariMed distributes its own lineup of cannabis products, including Kalm Fusion and Betty’s Eddies. MariMed recently acquired iRollie, a small manufacturer of branded cannabis products and accessories. iRollie also provides custom product and packaging for companies in the cannabis industry.

While Tilray operates in Canada, Europe, Latin America, and Australia, MariMed’s sole focus right now is on the U.S. market. But that’s actually a big plus for the company, considering U.S. marijuana sales should top $22 billion by 2022 — comprising roughly 75% of the total global legal marijuana market.

MariMed currently conducts business in five states: Delaware, Illinois, Nevada, Maryland, Massachusetts, and Rhode Island. However, the company is preparing to expand into Florida, Michigan, New Jersey, Ohio, and Pennsylvania. 

Adding more geographical territory is one avenue for MariMed to grow. Another is to make more deals. As a case in point, MariMed invested in Sprout, a customer relationship management and marketing software company targeting the cannabis industry. MariMed plans to distribute Sprout’s products in multiple states.

Better marijuana stock

Both Tilray and MariMed have great growth prospects. But the one thing that hasn’t been mentioned yet is valuation. Tilray’s market cap stands above $10 billion, while MariMed’s market cap is less than $1 billion. There’s a good argument to be made, though, that MariMed’s opportunity is greater than Tilray’s is right now because Tilray can’t compete in the United States.

I’m not convinced that either of these stocks is a great pick at this point. My view is that there are other marijuana stocks that provide better risk-reward propositions. But I think MariMed isn’t as wildly overvalued as Tilray is. MariMed therefore gets the nod as the better marijuana stock.

The post Better marijuana stock: Tilray vs. MariMed appeared first on The Motley Fool UK.

Amid all the hype about marijuana stocks, the one great equalizer comes when companies have to report their financial results. Tilray (NASDAQ:TLRY) has seen an amazing level of interest since its decision to list on the Nasdaq Stock Market earlier this year, and now, many investors are watching closely to see if the cannabis contender has the ability to live up to its full potential.

Coming into Tuesday’s third-quarter financial report, Tilray investors were looking for solid sales growth even as red ink continues to flow. Tilray wasn’t able to deliver quite the top-line rise that most had expected, and part of the blame might be the reduced prices that the company brought in from its cannabis sales. That’s a trend that shareholders will want to keep an eye on even as the rollout of recreational cannabis in Canada boosts results in the fourth quarter.

IMAGE SOURCE: GETTY IMAGES.

Tilray benefits from the boom in cannabis

Tilray’s third-quarter results were just the latest example of marijuana companies delivering impressive-looking results. Revenue of $10.0 million was higher by 86% from the third quarter of 2017, although it was slightly less than the $10.2 million that most of those following the stock had expected to see. Losses of $18.7 million were also much worse than in the year-ago period, but after allowing for non-cash compensation expenses, adjusted net losses of $0.08 per share were better than the $0.12 per share loss that marked investors’ consensus forecast.

Tilray’s fundamental results showed a mixed performance. On one hand, Tilray did a good job of boosting its production and sales capacity, with total sales volume of 1,613 kilogram-equivalents sold marking a 136% rise from the 684 kilos that the company sold in the third quarter of 2017. The company attributed the gains to increased demand from patients using medical marijuana, as well as bulk sales to other licensed producers of cannabis products and Tilray’s efforts to distribute its product on a wholesale basis for export.

However, pricing pressures had a negative impact on Tilray’s overall sales numbers. The cannabis producer said that its average net selling price fell to $6.21 per gram, down sharply from the $7.53 per gram that it brought in during the year-earlier period. Tilray attributed the reduction to a change in its sales mix, which included more bulk sales than in the same period during 2017.

Tilray also held nothing back when it came to spending money to try to build market share. Sales and marketing expenses were up by nearly 150% from year-earlier levels, and overhead costs rose by about the same percentage. In addition, Tilray’s stock-based compensation expenses jumped to $11.2 million, up from just $35,000 and showing the way that employees of the company are sharing in the stock’s success. With Tilray in an all-out competitive effort to position itself well for Canada’s recreational cannabis rollout, investors fully expected the company to take the opportunity to try to grab market share.

Can Tilray keep gaining ground?

CEO Brendan Kennedy tried to keep investors focused on the long run. “We are in the early stages of achieving our growth potential,” Kennedy said, “and our team continues to strategically execute on disciplined operational initiatives and investments to support Tilray’s long-term, sustainable growth as the pace of legalization continues to accelerate around the world.” The CEO reiterated the company’s commitment to serve both the medical and recreational cannabis markets both in Canada and globally.

With respect to the Canadian rollout, Tilray’s comments were minimal. The company managed to secure cannabis supply agreements with eight Canadian provinces and territories, including the key areas of Ontario, Quebec, and British Columbia, along with Manitoba, Nova Scotia, Yukon, Northwest Territories, and Prince Edward Island.

Instead, Tilray seems more focused on global opportunities. The cannabis company highlighted its acquisition of Alef Biotechnology to allow exports to Chile, with the intent of distributing products around Latin America. Wins in Germany, the U.S., and Australia also showed the benefits of Tilray’s attempts to become a worldwide player in the marijuana industry.

Tilray investors didn’t see the results as being particularly inspiring, and the stock dropped between 1% and 2% in after-hours trading following the announcement. Those following the marijuana industry will have to watch closely to see how well Tilray does in capturing new cannabis users in Canada during the fourth quarter, but they’ll also want to keep an eye on the company’s bigger plans to create a global marijuana empire.

The post Falling cannabis prices weigh on Tilray’s sales growth appeared first on The Motley Fool UK.

Investors have jumped into the marijuana market aggressively, banking on the rising demand as more jurisdictions legalize cannabis to drive sales across the industry. Among the top stocks in the industry, Tilray (NASDAQ:TLRY) has gotten a lot of attention from its initial public offering on the Nasdaq Stock Market earlier this year and its subsequent surge amid excitement for the legalization of recreational marijuana in Canada.

Tilray expects to release its third-quarter financial report on Nov. 13, and investors have high hopes that the newly public company can live up to all the hype. Yet rather than focusing too much on current results, you should concentrate on what Tilray says about its immediate future. The company will give some good information on Tuesday, but here’s an early look at what you can expect from its quarterly report.

IMAGE SOURCE: TILRAY.

Stats on Tilray’s third-quarter earnings

SOURCE: YAHOO! FINANCE, S&P GLOBAL MARKET INTELLIGENCE.

What investors want to see

Those following Tilray have had mixed views about the medical marijuana specialist’s likely future earnings. They’ve become more optimistic about Tilray cutting its losses in the third quarter and for the rest of 2018, but they’ve widened their loss projections for 2019. The stock has been extremely volatile since the company made its first earnings report as a public company three months ago — it has more than doubled since late August but has been up to a much greater extent before the past month’s slide.

Tilray’s second-quarter financial report in August produced a lot of excitement shortly following the company’s IPO. Sales climbed by almost 25% from three months earlier to $9.74 million, roughly doubling year over year. As is typical for small upstart companies, Tilray saw losses widen considerably as it sought to ramp up its production. Thanks to the IPO, Tilray dramatically improved its cash on hand in a way that didn’t show up in the June 30 numbers, but investors focused most of their attention on how the company would take advantage of opportunities to supply the Canadian market. In addition, efforts to build up international sales got a lot of attention, with nearly a dozen countries on the list of markets that Tilray served.

CEO Brendan Kennedy summed up his view of the company’s performance and outlook. “We are very pleased with our strong start to 2018,” Kennedy said, “[and] Tilray is well positioned to continue to pioneer the development of the global medical cannabis market and to become a leader in the adult-use cannabis market in Canada.” The CEO pointed to Tilray’s global strategy, distribution network, and research commitment as playing pivotal roles in the company’s long-term success.

The big question for Tilray

As useful as it’ll be to see how much growth it was able to produce in the third quarter, many investors won’t really be satisfied by whatever the company says about that period. That’s because Canadian legalization only happened in October, after the end of the third quarter. As a result, firm numbers about how the rollout went won’t show up until Tilray releases fourth-quarter financials early next year.

However, it’s likely that the company will give some information about the early stages of the introduction of recreational cannabis in Canada. That could ignite a new surge in excitement about Tilray, despite the fact that it has an extremely high valuation that many believe is unwarranted by its fundamental business prospects.

Even if early sales are encouraging, Tilray also has to boost its production capacity. Other industry players like Canopy Growth have already spent aggressively to build growing facilities that will give them a greater ability to supply the market, as well as to offer higher-margin cannabis-derived products to maximize profit. Investors will have to pay close attention to ensure that development projects are on track and will kick in fast enough to avoid losing market share to nimbler competitors.

Big moves for Tilray stock aren’t ending soon

Earnings results often give rise to big stock price moves, and Tilray has already been among the most volatile marijuana stocks. With all eyes on the medical cannabis company, it will have to work hard in order to satisfy investors that its prospects warrant the stock’s current valuation. Otherwise, the disappointment could prove problematic for shareholders after the report.

The post Tilray has something to prove appeared first on The Motley Fool UK.

Investors in cannabis stocks have learned the hard way that volatility can cut both ways. Even as investor interest in the marijuana industry soared during the late summer and early fall, share prices of cannabis companies hit the skids in recent weeks as the reality of what will inevitably be a long ramp up in production and sales activity hit home for shareholders.

Yet those who seek out the highest-growth opportunities in the investing universe are always looking forward to the next big catalyst for further growth. For the marijuana industry, that’s set to come in the form of quarterly reports for the rising number of publicly traded stocks that have connections to cannabis. Many of the biggest players in the space will issue their reports over the next week, and that should both refresh investors’ memories about the huge growth potential of cannabis and confirm whether marijuana companies are living up to their full potential.

IMAGE SOURCE: GETTY IMAGES.

What to expect from cannabis companies in the next week

Here’s a brief look at some of the major companies in the marijuana industry that are expected to report their latest earnings results in the near future:

• Canopy Growth (NYSE:CGC) reported a 63% year-over-year rise in revenue last quarter, bringing in $25.9 million Canadian dollars over the three-month period. Investors are hoping to see even more dramatic gains when it reports on Nov. 14, with current third-quarter sales projections for CA$75.3 million, which stem, in part, from the recent acquisitions Canopy has made.
• Tilray (NASDAQ:TLRY) saw even bigger growth rates when it issued its first quarterly results as a publicly traded company three months ago, seeing revenue nearly double to $9.74 million from year-earlier levels. Most investors are looking for only modest further gains, to $10.25 million in sales for the just-ended third quarter, but that would still likely be a big increase from what Tilray sold in the third quarter of 2017. Tilray’s expected to release its results on Nov. 13.
• Aurora Cannabis (NYSE:ACB) more than tripled its revenue in the third quarter of 2018, to CA$19.1 million, and most investors see those favorable trends continuing. Thanks to its acquisition of MedReLeaf, Aurora could see revenue of CA$39.5 million in its Nov. 14 report, and that figure would be almost five times higher than its year-ago sales.
• Cronos Group (NASDAQ:CRON) has been playing catch-up on a revenue basis, and it’ll have to keep working hard to do so for the foreseeable future. Sales of CA$3.39 million in the second quarter multiplied more than fivefold from year-earlier results, but projections for CA$3.56 million on the top line for the third quarter won’t give investors much in the way of sequential growth to hang their hats on when Cronos reports on Nov. 13.

It’s also important to keep in mind that investors are expecting none of these marijuana companies to be profitable during the period. That’s understandable, in part because the companies are just now ramping up their business models, and in part because the expenses of establishing themselves as key players in the cannabis industry have been extensive.

Much ado about nothing (yet)

Marijuana investors should look closely at these companies’ quarterly reports when they come out, but they shouldn’t focus on typical headline numbers like sales and net income. The reason is simple: The big impact that investors hope will send sales skyrocketing — the legalization of recreational cannabis in Canada — didn’t happen until mid-October. That means shareholders will have to wait until February before getting firm reads on how things are going in the Great White North.

However, what investors can expect now is commentary from company executives about early results, with anecdotal and some limited financial information about how the beginning of the fourth quarter is going. Already, there have been reports of limited supplies of cannabis in Canada, suggesting that the rollout hasn’t gone as smoothly as some had hoped. It could take a while for the new distribution process to work out the kinks.

The good news for investors, though, is that the experience in Canada should serve to provide valuable knowledge if cannabis companies get a chance for an even bigger rollout elsewhere in the future. Most marijuana investors are still focusing squarely on the huge potential of the U.S. market in the event of a federal legalization effort, so looking at how successful cannabis companies are in navigating difficulties in Canada could foreshadow winners and losers in a future U.S. push.

Keep your eyes open

After a tough October, marijuana investors are hoping for news that will restore confidence in the industry. Quarterly financials could provide that catalyst, and those companies that deliver good results could see nice rebounds in the week to come.

The post Here’s What Could Give Marijuana Stocks Their Next Move Higher appeared first on The Motley Fool UK.

There’s good news and bad news when it comes to Tilray (NASDAQ:TLRY) and CannTrust Holdings (NASDAQOTH:CNTTF). First, the bad news: Both Canadian marijuana stocks have tanked over the last couple of weeks. The good news, though, is that Tilray and CannTrust are still up a lot so far in 2018.

Tilray has been the bigger winner by far. But which of these two marijuana stocks is the better pick now? Here’s how Tilray and CannTrust compare.

IMAGE SOURCE: GETTY IMAGES.

The case for Tilray

Tilray’s CEO, Brendan Kennedy, recently stated that there will be multiple $100 billion companies in the cannabis industry. And he thinks that Tilray will be one of them. If Tilray gets even close to achieving Kennedy’s prediction, the stock is a great pick right now.

Canada’s launch of its recreational marijuana market is a start. Tilray should have 912,000 square feet of growing space by the end of this year, with roughly three-quarters of that space in Canada. The company also has plenty of space available for future expansion. My colleague Sean Williams projects that Tilray will rank fourth among marijuana growers in total production capacity by 2020. I suspect that Sean’s prediction will prove to be on target.

While capacity is key, there’s something just as important for Tilray in the Canadian recreational market: supply agreements with provinces and territories. The company is in good shape on that front as well. Tilray claims supply agreements with eight Canadian provinces and territories. 

We can’t forget Canada’s medical marijuana market. Tilray is a major player in the space. The company signed a deal earlier this year with Sandoz Canada, a subsidiary of Novartis, to co-develop and co-market medical cannabis products. 

Tilray can’t achieve Kennedy’s vision by focusing just on Canada, though. And it isn’t. The company has a significant presence in Germany and is currently the only producer authorized to supply both cannabis flower and cannabis oils in the country. Tilray also is positioned to benefit from the growth of medical marijuana markets in other areas across the world, particularly Australia, the United Kingdom, and Latin America.

The case for CannTrust

CannTrust Holdings is a lot further away from a $100 billion market cap than Tilray is. But that could be viewed as a positive for the company.

Despite being smaller than Tilray in terms of market cap, CannTrust compares really well when it comes to production capacity. The company opened its 450,000-square-foot Niagara Perpetual Harvest Facility on June 26, 2018. CannTrust is also adding another 600,000 square feet of growing space that is fully funded. When the project is completed, the company anticipates annual production capacity topping 100,000 kilograms. 

CannTrust also has supply agreements lined up for the Canadian recreational marijuana market with nine provinces. It most recently locked up deals with the Atlantic provinces of Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador. 

The company partnered with Kindred, a wholly owned subsidiary of Breakthru Beverage Group, to market cannabis products for the Canadian recreational market. Breakthru Beverage Group is a leading alcohol wholesaler in the U.S. and ranks as the largest alcoholic beverage broker in Canada. 

CannTrust hasn’t cracked the German medical marijuana market yet, but it is currently the only cannabis producer authorized to export to Denmark. The company has also exported medical cannabis to Australia. CannTrust has even launched a product in the U.S. — Brewbudz, a single-serve brew combining coffee with cannabis. 

Better marijuana stock

In my view, it’s an easy decision between Tilray and CannTrust. Maybe someday Tilray will become a $100 billion company, but I don’t think it deserves to even be a $10 billion company right now.

Unlike Tilray, CannTrust is already profitable. And with a market cap below $850 million, it’s arguably one of the cheapest Canadian marijuana stocks on the market. Tilray claims advantages in production capacity and in the German market, but I don’t think those are worth the stock trading at over 10 times higher than CannTrust does.

CannTrust faces risks, for sure, including the potential of a supply glut in Canada within a few years. For now, though, I see it as one of the better picks in the Canadian cannabis industry. 

The post Better Marijuana Stock: Tilray vs. CannTrust Holdings appeared first on The Motley Fool UK.