In the first half of 2019, TLRY stock lost a third of its value. No investor wants to hear that, especially if the company in question is one of the largest cannabis companies by market cap. And with a market cap of over $4 billion, Tilray Inc (NASDAQ:TLRY) is just that; a behemoth company with an unexpected performance.
TLRY stock is currently trading for $49.30 USD, with shares jumping 6.5% as of yesterday.
A Significant Decline for TLRY Stock
Tilray was one of 2018's most popular cannabis stocks with shares hitting highs of $214 USD following July's IPO. Since then, TLRY stock has cooled dramatically due to faltering operating results and a move away from Canada.
In March, CEO Brendan Kennedy announced that Tilray would focus future investments on the US hemp market and Europe's medical cannabis market, rather than Canada. Nobody questions the importance of both those markets, but does success here really require forgetting about Tilray's home country Canada?
Especially with recreational weed only legalized as of October 2018 in Canada, the move felt premature to many investors. Additionally, the cannabis derivatives market is expected to go live at the end of 2019. Will Tilray Inc simply not partake in this highly lucrative arm?
This head-scratching decision left investors confused, and TLRY stock reflected the confusion.
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Production Supply
Another questionable move regards the company's decision to stop producing more than 100,000 kgs of cannabis annually. Rather, Tilray is opting to buy from third parties. This has led to a minimal rise in gross margins; in back-to-back quarters, the company has delivered a gross margin of 20% and 23% respectively.
This poor growth, along with the costly expansion into Europe and the US means that Tilray turning a profit anytime before 2021 is quite unlikely.
The Motley Fool sums it up well:
"With plenty of capacity, but relatively minimal investment in added production, investors are rightly confused where Tilray and its management team go from here."
For its size and position in the Canadian market, Tilray Inc has presented itself as a confusing cannabis play. After all, why pay for third-party cannabis to meet supply demands when it could simply boost its own capacity for a much lower price?
Senseless? Or is there something analysts are missing here? What are your thoughts on TLRY stock?
Featured Image: Canva
