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Back in January, I discussed what Canadian cannabis and beverage company Tilray was doing (Nasdaq:TLRY)Basically trapped in the mud. The company just missed street revenue estimates for its latest quarter. Losses and cash burn are straining companies’ balance sheets. As the end of the company’s fiscal year approaches, management has announced several steps to improve its financials, but there is still much work to be done.
Looking back on the struggles I’ve had so far,
Tilray stock soared to $300 in 2018, when cannabis stocks were booming, but the growth story never materialized and the bubble quickly burst.Intense competition and the U.S. government’s failure to fully legalize marijuana have prevented Tilray from achieving significant revenue growth. Something that was once a hot topic.
One of the items I’ve been most concerned about over the years is dilution. Tilray’s management handed out shares like prizes on a game show, and the number of shares skyrocketed, as the graph below shows. Despite this dilution in recent years, I mentioned in my previous article that the company still carries a significant amount of net debt. I said I can’t be truly bullish on Tilray stock until this financial picture improves in a meaningful way.
Number of Tilray shares outstanding (Company declaration form)
Balance sheets improve, but at significant cost:
Since the date of the company’s chart above, 10-Q Filing, the company announced multiple measures to address its huge debt pile. This includes his three items:
- From our April 9, 10th quarter filing: We have entered into an agreement to cancel and exchange $41.9 million in principal amount of APHA 24 Notes through the issuance of up to 25 million shares.
- From April 24, 2024 to May 6, 2024, Tilray entered into certain equitization notes. exchange trading The Company plans to issue a total of 15.2 million shares of its common stock in exchange for $24 million in aggregate 5.25% convertible senior notes due June 1, 2024.
- On May 13, 2024, we entered into the following agreement. exchange trading. The Company intends to issue up to an aggregate of up to 13.1 million shares of its common stock in exchange for an aggregate principal amount of $19.8 million in 2024 Convertible Notes.
As of the end of its fiscal February period, Tilray had more than $83 million of its 2024 convertible notes outstanding. After last week’s transaction, the company had only a few hundred thousand left. This brings total debt, excluding other moves, to just over $300 million during the fiscal quarter that ended in May. The company started the quarter with about $226 million in cash and short-term investments on its balance sheet.
But perhaps the biggest news on this front was announced late last week. I’ve been arguing for some time that Tilray likely needs equity financing to shore up its balance sheet.That’s exactly what happened, $250 million stock distribution agreement It’s been announced. This move will certainly help improve the overall financial situation, but with the program currently trading below $2 per share, it could easily sell for well over 100 million more shares if it is fully implemented. More shares will be added.
This means that the number of shares outstanding could exceed 1 billion within the next few quarters. I’m still not an outright buy as this dilution could weigh on the stock price in the short term. However, the main issue here is that companies need to find a way to cut costs and achieve positive cash flow at some point. If not, we may consider issuing another share in the future to continue operations and pay off any other outstanding debt.
Evaluation arguments have been significantly improved.
In terms of valuation, Tilray currently has Approximately 1.9 times The expected sales for the fiscal year ending May 2025 are similar to that of Canopy Growth (CGC)teeth, Almost 4.0 times, this is due to Canopy’s surge in recent months on hopes of legalizing cannabis in the United States. When I previously covered Tilray, it was trading at a premium of a few tenths of a point over Canopy based on sales.
Street analysts remain fairly positive on Tilray. Average target price The current stock price is $2.37, suggesting an upside of more than 20% from the $1.90 share price in late Monday morning trading. However, the street average was $2.65 the last time I covered this name, and it was over $3.50 a year ago, so perhaps given this massive dilution going on, the It should be noted that the list is a bit of a drag on the goal.
Final thoughts/recommendations:
As for Tilray, the company has taken a step forward in recent months by working to improve its balance sheet. The company has been fairly successful in reducing its debt pile and is now looking to sell stock to significantly increase its cash pile. Unfortunately, these efforts have resulted in significant dilution, which continues to add up over time and appears to be a headwind for the stock in the short term.
For now, I continue to rate Tilray stock as a hold. The potential for marijuana legalization in the US is certainly a positive, but it’s hard to recommend a name like this when the number of outstanding shares has increased so rapidly over time. Management hopes these debt reduction efforts will help, as there is still much work to do to cut costs and reduce cash burn. Once the share sale program is completed in the coming months and we receive adequate guidance for the upcoming May 2025 financial year, the rating could be revisited in the coming months.
