Tilray Inc (NASDAQ:TLRY) stock jumped 17% yesterday in spite of a Wall Street analyst cutting her price target for the stock by a hefty 60%, down to $60 per share.
Analyst Vivien Azer at Cowen & Co. had originally set the target at $150 per share, but has since cut that target citing Canadian supply constraints that have hindered the cannabis market from growing as fast as the sector had hoped.
Tilray stock is down 90% from its September 2018 peak of $300 per share. And in Q2, the TLRY suffered an EBITDA loss of $17.9 million on net revenues of only $42.0 million. Nonetheless, the company’s market cap is still around $2.6 billion
With that being said, Azer still perceives TLRY’s recent weakness as a buying opportunity, and believes that Tilray stock will outperform the market.
She noted that the Canadian market “has been challenging over the last few months, as too few stores, supply shortages and a lack of novel products have hampered category development. We would argue that TLRY has been the most impacted by weak industry supply as its asset-light model was initially overly reliant on third-party supply.
Azer maintained her outperform rating, pointing out the company’s strategic position to enter the U.S. CBD market and its proactive moves to address capacity constraints.
She also cited its expanding international opportunities, noting that Tilray’s Portuguese license awaits final GMP certifications. She anticipates that the Canadian industry will work out its supply problems, becoming a C$12 billion market by 2025.
“We would argue that TLRY has been the most impacted by weak industry supply as its asset light model was initially overly reliant on third-party supply,” Azer said.
“While the company has indicated that it is seeing pockets of improvement, and recently moved up its supply/demand balancing timeline, it has also proactively addressed its capacity by expanding its current facilities as well as through the Natura Naturals acquisition.”
With Cowen’s lower price target, Michael Hickey at Benchmark Co. is currently Tilray’s biggest bull with an $80 target.
Tilray’s partners and acquisitions
Just last week Tilray announced the purchase of Canadian cannabis retail operator 420 Investments Ltd. The retailer operates six locations and has 16 additional licenses across Alberta.
This comes on the heels of another recent announcement about Tilray’s acquisition of Manitoba Harvest Hemp. However, contrary to the Manitoba Harvest Hemp deal, which was done as a 50/50 blend of cash and stocks, the 420 deal was done in all Tilray shares.
But utilizing shares to acquire companies can send mixed signals to investors. It’s important to note that Privateer is a private-equity firm that was an early investor in Tilray stock. Privateer owns 75 million shares of Tilray stock, which is approximately 77% of the publicly available shares of TLRY stock.
Privateer and Tilray just announced that they signed a letter of intent to extend the restrictions on the sale of Tilray stock. The deal also stipulates an eventual release of 75 million shares of Tilray stock.
This means that if 75 million shares of Tilray stock are going to hit the market, it could pose potential challenges for Tilray.
Tilray Inc. Cl 2 (TLRY) was trading at $29.04 per share on Wednesday afternoon, down $1.06 (-3.52%). Year-to-date, TLRY has declined N/A%, versus a 10.35% rise in the benchmark S&P 500 index during the same period.