Tilray's Sinking Share of the Canadian Cannabis Market - New Cannabis Ventures

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You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.

Friends,

When Tilray reported its fiscal Q1 three months ago, CEO Irwin Simon described the company’s market-share in Canada as 16%. The company has shared an objective to reach 30% share by 2024 through organic and non-organic means, which it suggests will yield $1 billion in revenue. Tomorrow, when the company reports its fiscal Q2, it is very likely to reveal that it lost market share over the past three months. Hifyre’s point of sales data suggests that the combined share of Tilray and Aphria eroded steadily throughout 2021:

Hifyre estimates that Tilray’s market share fell from 15.7% in its Q1 ending in August, which ties out to Simon’s 16% characterization, to 12.7% in its Q2 ending in November, a loss of 300 basis points in a single quarter. Said differently, the sale of Tilray products fell almost 15% from the prior quarter while the overall market expanded nearly 5%. Tilray is not alone in this regard, as the largest LPs by revenue have all been losing share.

We have cautioned subscribers at our premium service 420 Investor, which provides in-depth cannabis stock analysis, that the company is likely to fall short of analyst estimates for Q2 revenue at $174 million. In its Q1, overall revenue was $168 million, with cannabis at $70.4 million (42% of total revenue), which we estimate was down about 15% from a year ago. Adult-use cannabis, which was $50 million (71% of cannabis revenue), with the balance in medical, wholesale and international, declined by 7% compared to a year ago by our estimate as the overall market grew 47%. With the other components of revenue not likely to grow significantly from Q1, a 10-20% decline in adult-use cannabis revenue will likely weigh heavily on overall revenue growth. Of course, sales at retail don’t necessarily correlate perfectly with actual wholesale sales by LPs to the provinces.

Another short-fall in adult-use cannabis sales could not only weigh on the stock, but it could also lead to write-downs of inventory or its production capacity potentially. At 8/31, the company had $178.4 million in cannabis inventory as well as $25.6 million in packaging inventory. Its fixed assets exceeded $600 million, and subsequent to last quarter the company has revealed that it will be shutting the original Tilray facility in British Columbia. Investors should be prepared for impairment charges, in our view. Finally, Tilray’s weakness in the Canadian adult-use market is likely to spur the company to get more aggressive on M&A both within and beyond Canada.

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Sincerely,

Alan & Joel

Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email