Is Tilray Brands Stock a Millionaire Maker?
Tilray Brands (NASDAQ: TLRY) probably won't make you a millionaire overnight. But under the right set of conditions, could it make you wealthier over the coming decade or so?
It's not the most likely scenario, though it could happen. Let's discuss what would make it into a home run for shareholders so that you'll be equipped to determine if the tide is turning in its favor in the near future.
This company could one day become the biggest fish in two deep ponds
Tilray competes in a couple of industries across a handful of regions, and within that complexity is where its merit as a millionaire-maker stock lies.
The company's traditional line of business -- cultivating, manufacturing, distributing, and selling recreational and medical marijuana -- is based in Canada. Its alcohol segment, however, comprising a bunch of different brands of craft beer and distilled spirits, operates in the U.S., where it also provides distribution services. Its medicinal marijuana segment is positioned in a smattering of E.U. countries, and it also aspires to sell recreational cannabis where and when it is legal to do so.
In total, it brought in $194 million in revenue in Q2 of its 2024 fiscal year, 34% more than a year prior. The trouble is that its extensive global footprint entails heavy investment and high overhead costs, both of which have yet to pay off. It isn't a profitable company, and its quarterly operating margin has been in the red for almost every quarter of the last five years. Until that changes, it'll be relying on debt financing and issuing new stock to keep the lights on, so shareholders will effectively be on the hook, and their value will probably continue to get diluted.
Still, a reversal of fortune is possible, though not guaranteed. Consider how rapidly its revenue might grow if it could integrate its segments across its geographies. For instance, if there is cannabis legalization in the U.S., it could practically copy and paste its Canadian product offerings to the newly opened market, scale up its manufacturing facilities to serve the fresh demand, lay out more distribution routes and retail partners to move the finished products, and then rake in huge volumes of revenue.
Its alcohol segment has already laid the groundwork for distribution channels in the U.S., so the process could potentially occur quite quickly. And that's not to forget the potential for its U.S.-based alcohol brands to enter the Canadian market, which could provide some additional inflows. Then there's the prospect of scaling up its nascent medicinal marijuana operations in various E.U. countries if legalization proceeds, following a similar blueprint. Shipping its beer to the E.U. is probably something that won't happen, but anything is possible if the other elements of the above plan are proceeding.
In case it wasn't clear, management's long-term vision for Tilray is to be a global consumer brands company that ideally would be partially vertically integrated between its segments, particularly with regard to distribution and retailing. Significant synergies likely exist between its various businesses, but it's currently blocked from realizing them due to the laws surrounding cannabis.
Likewise, there may be economies of scale for it to realize in cultivation, manufacturing, distribution, and retailing -- and that implies it could one day have a high profit margin and very efficient operations. But that day is yet to come, so it is important to recognize that the risks of an investment are far higher than zero at the moment.
Don't let expectations get the better of you
The global market for legal marijuana is still in its infancy, so there is plenty of top-line growth for Tilray to capture over the coming decades. And when all of the above is considered holistically, the stock has the potential to rise by a tremendous amount, but only if the legal environment becomes more permissive, and only if it can start to squeeze cash from its operations rather than burning money.
As sunny as the above picture may be, it is important to remember that there are a handful of barriers that may rain on the parade.
First, marijuana legalization laws in the U.S. and E.U. are already taking far longer to manifest than anticipated, and they could easily take even longer still. Progress on that front has been inconsistent in recent years, with a patchwork of regional-level medicinal policies making it difficult for companies to spread out into all sub-markets where the law would allow it. Breakthroughs are possible, and probably inevitable, but they might not happen on shareholders' preferred schedule.
Second, competition is becoming fiercer in every segment of the cannabis industry as markets become more crowded, and Tilray's alcohol segment already faces significant competitive headwinds due to that industry's fairly mature and crowded status. There is no guarantee that Tilray will be able to consistently match its products to consumer preferences, or that it will succeed against local operators when it enters international markets. At some point, growth could become hard to come by.
Furthermore, though it is not yet profitable, Tilray's future profit margin will be under increasing pressure until it can demonstrate some kind of competitive advantage. And, as it is not yet profitable on an operational basis, squeezed margins may complicate its ability to continue expanding. That will push back the timeline for it returning capital to investors, to say the least.
But as long as you are patient and comfortable with the possibility of these delays and risks, Tilray's millionaire-maker potential remains alive, though improbable. Dollar-cost averaging into the stock gradually over time is a better idea than committing a large chunk of capital up front, as the natural ebb and flow of the cannabis industry is a fact of life that investors should plan around. Just be aware that if there is a road to a dramatically higher share price, the path will be on the long side for those who invest today, even assuming that its grand plan plays out as envisioned.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
Is Tilray Brands Stock a Millionaire Maker? was originally published by The Motley Fool
