Share Price Drops as Investors Concerned about Lack of Cannabis Profits – LPC
Tilray posted a larger-than-expected loss, though Tilray CEO Brendan Kennedy is not apologizing for a lack of cannabis profits. During Tilray’s second-quarter results announcement after the bell on August 13, Kennedy said spending must continue.
“Once in your lifetime, if you’re lucky, you see an entire industry emerge overnight,” Kennedy told Bloomberg News. (Click link below to view the whole article). “If you want to dominate that global industry, you’d be constraining yourself if you were focused on profitability.” He added that Tilray could be profitable within a quarter, but that would slow expansion.
Revenue actually beat estimates by a large percentage: US$45.9 million actual versus US$40.3 million expected. (Tilray reports in US dollars.) Tilray’s production was also up, selling sold 5,588 kilograms of cannabis in the quarter – up 86 per cent from the previous quarter. That didn’t convert to cannabis profits, however. The company posted a US$17.8 million loss instead of the expected US$14.4 million. Tilray attributed the costs to expanding cultivation facilities in Canada and Portugal, and acquiring third-party cannabis supply.
Cannabis profits were further affected by the dollar drop in price. Average net selling price dropped from $5.60 per gram in the first quarter to $4.61 per gram.
Not All Agree with Kennedy – LPC
Investors and company boards are getting anxious to see cannabis profits. Last month, Canopy Growth announced that CEO Bruce Linton stepped down though it was revealed later to be a firing. Its partner Constellation Group also didn’t see profitability fast enough.
It should be noted that several analysts are putting a different spin on Tilray’s shortcomings. Global investments are seen as a risk to cannabis profits. “Tilray is NOT a story of growth in Canada,” wrote portfolio manager Tim Seymour at Amplify Seymour Cannabis ETF. “They are lagging behind the big (licensed producers) in Canada.” These include Canopy Growth, Aphria, Aurora, and OrganiGram.
Others see Tilray’s gamble on hemp in the US as another drag on cannabis profits today.
So what’s the ideal course? Listen to investors and provide smaller cannabis profits now? Or risk getting fired reaching for the bigger goal of expansion? And should the focus be on global or domestic? It’s proving to be a difficult balancing act for cannabis company CEOs.