Stay away from Tilray, this portfolio manager says

Last year’s dramatic rise and fall of Tilray (Tilray Stock Quote, Chart NASDAQ:TLRY) was one of many signals that the nascent cannabis sector had yet to find its feet, but just as vexing has been the stock’s slow decline over the past six months.

Has Tilray finally hit bottom or is there more downside yet to come? It’s too difficult to tell, says Cameron Hurst of Equium Capital Management, who argues that even if the BC-based company does eventually emerge a winner, that day could still be years away.

Ahead of Tilray’s first quarter report due next Tuesday, investors will be looking for signs that profitability may be around the corner. The company posted a net loss of $41 million in its Q4, delivered in mid-March, which was attributed to operating costs, expansion of its facilities and M&A activity. At the same time, its top line of $15.5 million bested analysts’ consensus forecast of $14.1 million in sales. (All figures in US dollars.)

Where other marijuana stocks such as Canopy Growth, Hexo Corp and Cronos Group posted substantial gains over the first few months of the year, Tilray has been a noticeable outlier, dropping 36 per cent since the start of 2019.

Hurst says Tilray remains a risky buy, as not enough data has been generated at this point to make an educated call on the stock.

“We wouldn’t buy it. It was at $350, and the speed at which it got there was bettered only by the speed at which it dropped from there,” says Hurst, CEO and chief investment officer at Equium, to BNN Bloomberg on Wednesday. “You really have to be careful with these names.”

“Ultimately, it’s very early in this industry’s history and development. So, you’re really buying into something that is a long-term story, you hope,” he says. “Is it the right name, how is it going to go, how are they going to cash flow through? You’re looking at probably another two years of losses, at least, on current estimates.”

“We wouldn’t go there. It doesn’t fit our model,” he says. “It’s way, way too aggressive. If we’re aiming to deliver seven to nine per cent per year on average over the cycle, we just don’t need to take this kind of risk. Going from $350 down to $46 is crippling in terms of trying to earn it back.”