Is Tilray’s $2B Valuation Just The Beginning? Analyst Sees $10B Market Opportunity
As the cannabis industry continues to evolve globally, Tilray Brands (NASDAQ: TLRY), with a valuation of $2 billion, emerges as the most prominent cannabis entity outside the United States. The company not only leads in international sales but also commands the Canadian recreational cannabis market. Recently, Pablo Zuanic of Zuanic & Associates shed light on Tilray’s market standing by initiating coverage with a ‘Neutral’ rating, while pointing towards Tilray’s vast potential in the worldwide market.
“In a bull-case scenario, the stock could be near $7 a year from now. While we start with a Neutral stance due to near-term execution and reinvestment risks, we maintain a long-term constructive view,” Zuanic commented. He further elaborated on Tilray’s strategy to create an encompassing alcohol drinks ecosystem in the U.S., which could potentially lead to revenue synergies with cannabis in the future.
Zuanic predicts strategic gains for Tilray’s diversified cannabis operations, projecting sales growth from $784 million in FY24 to $924 million in FY26, alongside earnings per share improvements.
Strategic Assets and U.S. Opportunities
Tilray’s portfolio broadens beyond cannabis to include beverages, wellness products, and distribution – sectors poised to benefit significantly from U.S. federal legalization. Despite the hurdles in acquiring U.S. assets due to federal restrictions, Tilray remains optimistic, particularly with a recent $250 million equity offering potentially aiding its U.S. expansion strategy. Noteworthy is Tilray’s investment in MedMen through debt holdings, with plans to equitize this investment upon federal legalization.
International Growth and Market Valuation
Looking globally, the international medical cannabis market, stands as a burgeoning $10 billion dollar arena – a space where Tilray, with established operations in Portugal among other nations, is well-positioned to thrive. Success in maintaining a competitive edge and executing its global strategy could dramatically increase its market valuation.
Canadian Market Dynamics
In Canada, despite dominating the recreational landscape, Tilray faces challenges such as market saturation and regulatory limitations. The Canadian sector’s growth has been tepid compared to U.S. states, burdened by rigorous marketing regulations and a substantial excise tax load, affecting overall profitability.
Stock Performance and Investment Outlook
With an analysis showing a mix of positive international expansion potential and risks from slow growth or regulatory complications, Tilray’s stock exhibits resilience with notable year-over-year growth. Considering Tilray’s strategic placements in the U.S., its diversified portfolio, and stronghold in international and Canadian markets, Zuanic’s outlook remains optimistic.
“Tilray’s strategy to blend the U.S. F&B segment with its cannabis business could harness significant synergies upon federal cannabis legalization. Its valuation premium, substantial cash reserves, and NASDAQ listing stand as key strategic advantages,” detailed Zuanic.
The U.S. Alcohol and Non-Alcoholic Drinks Sector
Since acquiring Sweetwater in November 2020, Tilray forayed into the alcohol sector, aiming for diversification and anticipating future overlaps between alcohol brands and recreational cannabis. This move aligns with the evolving dynamics between hemp derivatives and THC cannabis, hinting at potential revenue synergies even before full legalization.
“With revenues nearing $300 million, considering the acquisition of eight craft brands from Anheuser-Busch InBev (NYSE:BUD), Tilray is on the path to becoming a top 12 beverage alcohol company in the U.S., currently standing as the fifth largest craft brewer,” noted Zuanic. This expansion not only reinforces Tilray’s EBITDA and cash flow but also presents growth avenues through product innovation, investment, and distribution channel expansion.
The cannabis industry’s landscape is rapidly changing, with companies like Tilray at the forefront of this transformation, potentially shaping the future of global cannabis and beverage markets.
