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'The field of battle has changed': Tilray CEO plots next steps for global growth

Brendan Kennedy, CEO and founder of British Columbia-based Tilray Inc., a major Canadian marijuana grower, poses next to his company's logo at Nasdaq where the company's IPO (TLRY) opened, Thursday, July 19, 2018, in New York. (AP Photo/Bebeto Matthews)

Tilray Inc. (TLRY) saw its revenue climb more than 200 percent year-over-year in its fourth quarter to $20.9 million, topping analysts expectations. The company said its plan now is to shift investment dollars to the United States and Europe, where there is more long-term opportunity than Canada.

The Nanaimo-B.C.-based cannabis producer realized a net loss of US$31 million or $0.33 per shares, more than double the $0.15 per loss forecast by analysts polled by the Thompson Reuters’ Refinitiv service.

Monday’s financial results mark the first full quarter for the company post recreational pot legalization in Canada.

Adjusted EBITDA was a loss of $17.8 million, compared to a loss of $2.1 million the prior year period. Tilray blamed rising operating expenses related to growth initiatives, expansion of international teams and costs related to financings and M&A activities.

“We are in the early stages of the global transformation of a $150 billion worldwide industry,” Tilray president and chief executive officer Brendan Kennedy told analysts on a post-earnings conference call. “We are very pleased with our performance in Q4 and 2018 overall.”

Kennedy said Tilray will turn its investment focus to only the “most promising” markets to fuel expansion, shunning “overpriced supply assets in Canada, which we believe will erode in value in the medium to long-term as the market normalizes.”

“The United States and Europe are orders of magnitude larger than Canada,” Kennedy added. “We believe that the field of battle has changed and the U.S. and Europe will are going to be more important over the long term.”

Tilray has been on a Canadian shopping spree in 2019, snapping up Leamington, Ont.-based licensed producer Natura Naturals for up to C$70 million in cash and stock, acquiring hemp food company Manitoba Harvest for up to $419 million in cash and stock

Kennedy said Tilray has the potential to become a “multibillion dollar consumer packaged goods company.” He added that the Manitoba Harvest acquisition will give consumers what they want: relationships with brands they already know and trust.

Manitoba Harvest, described as the world’s largest hemp foods company, is said to sell its products in over 16,000 stores at major retailers across the U.S. and Canada. The former being of strategic importance for Kennedy, who believes “we are a lot closer to federal legalization in the U.S. than most people realize.”

He said Tilray is looking to secure additional paths to get non-psychoactive CBD products to the U.S. market before the end of the year, and announce additional sources for U.S. CBD in the coming months.

In Europe, Kennedy hopes to cash in on the medical side, in particular jurisdictions like German where cannabis is subsidized by the government.

Kennedy also updated his outlook for Tilray’s partnerships with Authentic Brands Group and beverage giant Anheuser-Busch InBev (BUD). He said Tilray will work with the owner of Nautica, Aéropostale, Juicy Couture, and Vince Camuto to bring hemp-derived CBD products to retailers by the end of the year. As for AB InBev, he said he hoped the joint venture would expand beyond Canada.

“Neither party hopes of that agreement is just for R&D in Canada,” he said. “So clearly, there is an interest and desire to potentially expand that agreement in the future.

Tilray nearly tripled the kilogram-equivalents sold in the fourth quarter, 2,053 versus 694 kilograms in the prior year period. The average price per gram rose five per cent from a year ago to $7.52.

The company was criticized for failing to participate in Canadian recreations sales in its third quarter, and acquiring supply from third parties.

Kennedy said supply and demand might not even out for another 18 months.

Gross margin for the fourth quarter decreased to 20 per cent from 57 per cent in the same period last year as a result of procurement of third-party supply, cost related to ramping up our production and absorbing the tax for our medical patients.

For the full 2018 financial year, Tilray reported revenue of $43 million, up 110 per cent from the previous year, and net loss of $67.7 million compared to $7.8 million in 2017.

“2018 was a very successful year for Tilray with many corporate milestones,” Kennedy said in a news release after markets closed on Monday. “Our team made significant progress on our long-term initiatives including increasing production capacity, expanding and strengthening strategic partnerships, and acquiring complementary businesses to accelerate our future growth and leadership position in medical and adult-use cannabis.”

NASDAQ-listed shares climbed 4.51 per cent to $75.54 in post-market trading at 4:27 p.m. ET.

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