Tilray is deploying a 'risky strategy' to expand globally
- Tilray on Monday beat on sales but missed on the bottom line.
- The cannabis producer pointed to a lack of supply in Canada and high international expansion costs.
- Tilray's argument is that Canada will soon see oversupply and that it will be an insignificant market compared to the opportunities in the EU and US, Jefferies said, citing the company's its earnings call.
- Tilray's strategy to focus on international expansion while dismissing Canada is very risky, the firm said.
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Tilray's strategy to focus on international expansion while dismissing Canada is very risky, Jefferies says.
The Canadian cannabis producer on Monday reported better-than-expected sales, but missed on the bottom line due to a lack of supply in Canada and high international expansion costs.
"The company's argument is that Canada will soon see oversupply and Canada will be insignificant anyway compared to the EU and US opportunity," Jefferies analyst Owen Bennett said in a note out Tuesday, citing comments from Tilray's management during the company's fourth-quarter earnings call.
"We think this is a risky strategy near term given its multiple, especially as investors will be increasingly looking to Canada as evidence of a company's ability to execute, and international is yet to contribute in any material way to sales and yet costs are weighing (the company not breaking out the international contribution is also not helpful)," Bennett added.
Tilray debuted for trading on the Nasdaq in July, becoming the first cannabis company to have an initial public offering in the US. Since then, it has sped up expanding its business globally.In December, Tilray announced a partnership with a division of the Swiss drug giant Novartis AG, hoping to commercialize its non-smokable medical-cannabis products, develop new products, and educate pharmacists and physicians about cannabis.
But Bennett says the company is overconfident about global markets.
"We also think Tilray could be overestimating the size of the US hemp CBD market which they quote as a $22bn opportunity (it was estimated at only $390mn in 2018)," he said.
Bennett has an underperform rating and $61 price target -16% below where shares settled on Monday.
Tilray shares were little changed this year through Monday.