Tilray’s share price drops 6% after Q2 earnings miss

US Senate leader Chuck Schumer appeared to admit defeat on cannabis reform late in 2022, leading already beleaguered stocks like Tilray to finish the year on a low point. Pessimism increased when Tilray announced a revenue and earnings miss for the second quarter of FY 2023, amid signs that key markets may be maturing.

- Tilray shares slide on earnings miss

- There are signs that the US and Canadian cannabis markets are maturing

- Global X Cannabis ETF down 66% in past 12 months

Canadian cannabis company Tilray [TLRY] saw its share price fall on Monday after reporting that it had made a quarterly loss. The stock was down 3.7% in pre-market trading, and it closed the day down 6.4% overall.

Marijuana stocks more broadly have seen their share price trajectories tip downward since the final weeks of 2022 after Senate Majority leader and long-time cannabis reform advocate Chuck Schumer effectively admitted defeat on passing meaningful legislation.

Tilray’s share price fell 8.6% on 19 December, shortly after Schumer made a last ditch effort to push for legal reform. The stock has fallen a further 7.4% sine then, up to 9 January’s market close.

Tilray releases mixed financial results

In Tilray’s latest financial results, announced before markets opened on 9 January, the company reported $144.1m in net revenue, a 7.6% decline year-over-year and 7.8% shy of the $156.4m forecast by Refinitiv analysts. Net losses of $0.11 per share missed analyst expectations of $0.06 losses per share.

Following the results, Tilray’s shares opened on 9 January 4.75% below the previous trading session, and closed down 6.4% for the day.

Nevertheless, there were small signs of encouragement. Gross profit increased 22% year-over-year to $40.1m as the company tried to shift its focus towards profitability. While cash reserves fell from $415.9m at the end of May to $190.2m at the end of November, over the same period marketable securities increased from $0 to $243.3m. Combined, cash and marketable securities increased 4.2% year-over-year.

Tilray maintained its position as the leader in the Canadian recreational cannabis market with 8.3% market share.

Cannabis growth slows

Along with the news that legal reform may be at something of a dead end in the US, there are also signs that the growth of the cannabis market is slowing faster than expected.

Frederico Gomes, an analyst at ATB Capital Markets, noted the market grew 7.7% year-over-year in September 2022, the slowest rate since the plant’s legalisation in Canada in 2018.

Meanwhile, Roy Bingham, CEO of cannabinoid market research firm BDSA, told The Fly that 2023 is likely to bring brand share consolidation within the US cannabis industry thanks to a decline in prices in mature markets like Arizona, Colorado, California and Oregon. Bingham expects the overall market to shrink by 10%.

However, he highlighted East Coast geographies, particularly New York, as potential growth markets for the industry. He said New York is “obviously a market with tremendous potential just based on the scale and opportunity”.

In its recent earnings report, Tilray’s chairman and CEO Irwin D. Simon said the company had taken “decisive, effective actions to manage operating cash flow and focus the business on accretive acquisitions and a path to long term profitability” and that it was “close to achieving [its] increased annualised cost savings target of $130 million”.

Funds in focus: Global X Cannabis ETF

Tilray is the second-largest holding in the Global X Cannabis ETF [POTX] with a 15.55% weighting as of 9 January. The fund has suffered as a consequence of 2022’s lack of US cannabis reform, falling 66.5% in the year to 10 January. Top holding Innovative Industrial Properties [IIPR] has a 19.26% weighting and fell 49.3% over the same period.

The damage that the failure of reform legislation to pass the Senate had on the industry is exemplified by POTX falling 25.5% during the month of December.

The ETFMG Alternative Harvest ETF [MJ] was a relative overperformer among Cannabis ETFs, but it still has fallen 60.2% over the last 12 months. Tilray has a smaller weighting in MJ than in POTX, as the fourth-largest holding with 7.01% net assets as of 7 January.

Analysts polled by Refinitiv yield a median 12-month price target of $3.70 for Tilray, implying 34.1% upside from the 9 January closing price of $2.76.