Recent quarterly numbers from Canadian cannabis producer Tilray (Tilray Stock Quote, Chart, News NASDAQ:TLRY) may have been underwhelming but it’s still early innings for legalized marijuana.
So says Tilray CEO Brendan Kennedy, who thinks investors should be thinking more long-term when it comes to the pot companies.
Nanaimo, BC’s Tilray reported third quarter numbers on Tuesday for the period ended September 30, 2019, posting revenue of $51.1 million, a 409 per cent increase over last year’s Q3.
The company chalked up the higher top line to expansion of the Canadian adult-use market, results from Tilray acquisition Manitoba Harvest as well as international growth in the company’s medical cannabis segment. (All figures in US dollars.)
“Our performance in the third quarter, including solid revenue growth and sequential gross margin expansion, reflects the positive business trends we have underway,” said Kennedy in a press release.
The impressive top line growth beat analysts’ consensus estimate which called for $49.4 million in revenue, yet the company’s losses grew over the quarter to $35.7 million or $0.36 per share compared to a loss of $18.7 million or $0.20 per share a year ago. Analysts had been expected a loss of $0.29 per share.
Kennedy said the company’s quarterly losses are part of Tilray’s ongoing build-out, which is starting to pay off overseas.
“We’re pleased with our revenue of $51.1 million, it’s 5x growth compared to the same quarter last year. An important part to note in there is our international revenue grew to $5.7 million, again a fivefold increase over the same quarter last year,” says Kennedy, speaking to CNBC Tuesday.
“Currently, we’re expecting to be EBITDA positive in Q4 of next year,” he says. “If you think about the revenue growth, that’s because of investments that we made in 2017 and 2018. We have one project left in Portugal that we’re wrapping up and that will not only increase our revenue going forward but our profitability throughout 2020-2021.”
Kennedy said Tilray as well as the industry as a whole are likely to benefit from the emergence of so-called Cannabis 2.0, where cannabis derivatives such as edibles, topicals and beverages become available across Canada by the end of this year.
“In Q4, we will see new products, new form factors as part of the next phase of legalization and those products generally have a higher profit margin,” Kennedy says.
Tilray made a splash when it debuted on the Nasdaq exchange in the summer of 2018, rocketing up the charts and just as quickly falling back to Earth. More recently, the stock has been sliding along with the cannabis sector as a whole, which has gone out of favour with investors now impatient to see positive EBITDA from pot companies. Year-to-date, TLRY is down over 80 per cent.
But Kennedy thinks the growth potential in cannabis should still be a draw for investors.
“It’s still Day One in this industry. If you think about 41 countries that have legalized medical — and I think that that will increase to 80 — there’s only two countries in the world, Uruguay and Canada, that have legalized for adult-use and that number is going to increase. I can’t think of another high-growth industry that I’d rather be in,” Kennedy says.
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