Tilray Earnings: Slow Fiscal Quarter, but Second Half of Year Should Be Better

Key Morningstar Metrics for Tilray Brands

• Fair Value Estimate: $3.30
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Tilray Brands’ Earnings

Based on our initial review of Tilray Brands’ TLRY fiscal second-quarter results, we expect to trim our full-year revenue forecast by a mid-single-digit percentage. This is mostly due to slightly slower cannabis revenue growth than we expected, as Canada remains overcrowded with licensed producers. This should lead to a mid-single-digit percentage reduction in our fair value estimate of $3.30 per share. Tilray has yet to achieve positive free cash flow, and the potential for equity dilution to fund cash burn underpins the risk that drives our Uncertainty Rating.

Tilray reported net revenue of $194 million, up 10% sequentially and 35% over the year-ago quarter. In the year to date, the company has generated about $22 million in adjusted EBITDA. Still, management reiterated its full-year adjusted EBITDA guidance of $68 million-$78 million, an increase of 11%-27% over fiscal 2023. Although requiring a significant acceleration in the back half of the year, this range still looks achievable to us, given seasonality as summer approaches, full-year contributions from recently acquired craft beer brands, and cost savings extracted from the Hexo acquisition.

Shares were down nearly 10% on the results—more than our expected cut to our fair value estimate. We think the reaction was worsened by Canopy Growth CGC issuing another equity raise below fair value, worrying investors of further dilution risk across the sector. We think Tilray looks undervalued, but still see a better risk-adjusted upside in U.S. multistate operators Curaleaf Holdings CURLF and Green Thumb. Unlike Tilray, which has no THC exposure in the United States, these companies would benefit directly from any softening of U.S. federal marijuana prohibition.