Tilray has target cut by Haywood

Haywood Capital Markets analyst Neal Gilmer has tempered his near-term growth expectations on Canadian cannabis heavyweight Tilray Brands (Tilray Brands Stock Quote, Charts, News, Analysts, Financials NASDAQ:TLRY). In an update on Thursday, Gilmer reiterated a “Hold” rating while lowering his 12-month target price from $3.50 to $3.00, saying the Canadian market for cannabis LPs is still challenging.

Tilray released its third quarter fiscal 2023 financials on Monday for the period ended February 28, 2023, showing net revenue of $145.6 million, representing a four per cent year-over-year decline. Adjusted EBITDA was $14.0 million compared to $10.1 million a year earlier. (All figures in US dollars.)

Tilray also announced with its third quarter release a definitive agreement to acquire Gatineau, Quebec-based LP HEXO Corp for approx. $56 million. Tilray said it will issue 0.4352 Tilray shares for each outstanding HEXO share, and the closing date is expected in June 2023.

“We are incredibly excited about our combined prospects moving forward with HEXO and expect a seamless integration of HEXO’s business into our efficient, built-to-last platform,” said Tilray Chairman and CEO Irwin D. Simon in a press release.

“At the same time, we will continue our relentless focus on cost and operational efficiencies and strengthening our industry-leading balance sheet to deliver sustained, profitable growth and shareholder value,” he said.

Gilmer said Tilray’s $145.6 million topline was under his estimate at $149.4 million as well as the consensus forecast at $150.1 million, while the $14.0 million in EBITDA was also below his $15.8 million estimate and the Street’s call at $16.9 million.

On guidance, Gilmer noted Tilray’s revised forecast for adjusted EBITDA for its full fiscal 2023 from $70-$80 million to $60-$66 million, citing pricing pressure in the Canadian market.

“Current headwinds in the Canadian adult-use market such as the pricing war and excise tax regulations resulted in the Company’s cannabis segment sales declining for the second quarter,” Gilmer wrote.

As to the HEXO acquisition, Gilmer said on a pro-forma basis, the combined company would have had a 12.8 per cent market share in Canada on TLRY’s fiscal third quarter, which would have been nearly double the second-ranked LP in the country.

Gilmer said Tilray is still a market share leader in Canada and he’s encouraged by its international opportunities as well as its beverage business in the United States. At the same time, the analyst is staying cautious on the overall Canadian landscape in general and Tilray’s lack of growth in particular.

“We maintain our Hold rating as we await more evidence on accelerated near-term revenue growth drivers,” Gilmer said.