Bottom Line:

Tilray’s third-quarter earnings may be catching headlines, but what is more interesting is the SEC filing the company put out shortly afterwards.

Tilray has plans to raise money through issuing stock or debt which it will use to buy out up to 20% of the Tilray shares owned by private equity backer Privateer Holdings.

This unofficial buyback has been buried within the larger announcement that Privateer Holdings will merge into a subsidiary of Tilray.

Privateer Holding’s largest shareholder and founder is Brendan Kennedy, the current CEO and board member of Tilray.

Along with Kennedy, Privateer insiders own 75% of Tilray shares and control 90% of the voting power.

All investors need to understand is that this cash buyout of Privateer shares is a backdoor way for Tilray management to cash out their shares without having to declare the lockup period expired. 

As the management of Tilray knows, the expiry of share lockups can often put pressure on a stock’s share price as traders go short in anticipation of the stock decline and insiders sell their shares for big gains post lockup.

Though done legally with all required disclosures, this move by management looks slightly underhanded.

Tilray is buying back up to 20% of insider shares while at the same time promoting a new two-year lockup agreement with the remaining Privateer shareholders.

 

So What Do We Think of Earnings This Quarter

Tilray is struggling with pricing down 24% since only last quarter, stagnating rec sales in Canada and declining revenue from the hemp business.

Tilray is starting to catch up to Canopy and Aurora when it comes to ramping up international revenues, but this is still primarily a Canadian cannabis company.

Losses continue to mount overall with EBITDA running at a significant $105 million annually.

This matters because analysts expect only a $30 million EBITDA loss in 2020, down 70% from today.

Tilray is struggling with pricing down 24% since only last quarter, stagnating rec sales in Canada and declining revenue from the hemp business.

International sales aren’t going to save this company so Tilray will have to find another way to ramp up revenue significantly for it to have any chance of meeting market expectations.

 

Earning Review

British Columbia-based Tilray, Inc. (Nasdaq: TLRY) is the latest cannabis company to release its Q3 financial reporting, announcing a bump in total revenue but with similar overall loses as the previous quarter.

The company’s stock was down slightly this morning ahead of the earnings call as pessimistic investors continue to expect downward trends from a struggling industry.

Tilray’s Q3 saw $51.1 million in revenue, which was only slightly higher than the street estimate of $49.5 million and additionally up from the $45.9 million the company earned in Q2 2019.

A larger portion of that revenue came from recreational sales in Canada this quarter than medical outlets, although medical sales combined between Canadian and international markets dwarfed adult-use numbers.

Tilray has seen a significant bump in medical sales — both domestic and international — from the previous quarter, increasing from $10.8 million to $19.6 million this quarter between both sources.

Those higher medical numbers arrive as the company works towards an increased international presence through an August deal to lease outdoor grow space in Portugal.

Recreational cannabis sales were effectively flat, up only 5%, while the hemp business saw revenue fall 21%.

Medical sales rose 53% while international sales were up 200% leading to an overall sales increase of 11% in the quarter.

Despite higher revenue, Tilray still reported a net loss of $35.6 million for the quarter, compared to a similar net loss of $35.3 million in the previous quarter.

Street estimates had put the company’s EBIDTA loss around $17.9 million, with the company reporting an actual adjusted EBIDTA loss of $23.5 million. That represents a loss of $0.36 a share, slightly above the estimation of $0.30 a share and holding steady at the same earnings per share loss as last quarter.

The company has lost more than 75% of its stock value so far this year, trading at $21.57 after close of business today, which is down sharply from the $100 mark back in mid-January.

Tilray CEO and President Brendan Kennedy commented on the Q3 numbers releases today:

Our performance in the third quarter, including solid revenue growth and sequential gross margin expansion, reflects the positive business trends we have underway. We are in the early days of seeing our strategic initiatives bear fruit – including European expansion, brand portfolio evolution, and strategic partnership launches. We continue to expect significant growth into 2020.

The company reported just slightly north of $122 million in cash on hand at the end of September, and is looking to take advantage of global infrastructure and supply chains in the hunt for profitability.

On the value-added product front, Tilray is preparing to launch infused beverages next month through the Fluent Beverage Company, a joint venture between Tilray subsidiaries and beer giant Anheuser‐Busch InBev.