Tilray Brands Inc

Tilray Brands Inc. (NASDAQ: TLRY), previously Tilray, Inc., is a cannabis-lifestyle consumer packaged products company with operations across the world. The cannabis business, distribution business, beverage alcohol business, and wellness business are the four segments in which the company works. Cultivation, manufacture, distribution, and sale of medicinal and adult-use cannabis products are all part of the cannabis industry area. Customers are served through the distribution business division, which purchases and resells pharmaceutical and wellness items. The beverage alcohol business segment is responsible for the manufacture, distribution, and sale of alcoholic beverages. Hemp-based food and cannabidiol (CBD) products are produced, marketed, and distributed within the wellness business area.

Key Financials for Q3 FY22

• In the third quarter, net revenue climbed by 23% to USD 152 million, up from USD 124 million the previous quarter. The rise was fueled by a 32% increase in cannabis revenue to USD 55 million, a 64% increase in beverage alcohol sales to USD 20 million, and a 15% increase in wellness revenue.
• From USD 30 million in the previous quarter, gross profit climbed by 31% to USD 40 million. The gross margin grew to 26 percent from 25 percent the previous quarter. Significant revenue growth in international cannabis, with sales up over 4,000 percent year over year and a 37 percent rise in EMEA revenue over the previous quarter.
• Revenue from distribution fell 11% to USD 63 million in the third quarter, down from USD 70 million the previous quarter. The drop was caused by the impact of changes in the Euro/USD exchange rate, which resulted in a USD 7 million decline.
• So far, cost savings of USD 76 million have been obtained from the Aphria-Tilray combination on a run-rate basis. Expect to hit the USD 80 million synergy objective five months early, on May 31, 2022, and to produce an additional USD 20 million in synergies in fiscal 2023.
• As of the quarter ending February 28, 2022, the cash and cash equivalents for the company were USD 279.21 million compared to USD 488.47 million as of May 31, 2021, while the long-term debt balance decreased to USD 121.21 million at the end of this quarter from USD 167.49 million as of May 31, 2021.

Other Important Highlights to consider

• Tilray Brands, Inc. announced on June 7, 2022, that CBN Night Oil, the company's first CBN oil medicinal product tailored for patients' evening usage, has been introduced by Aphria, Tilray's medical cannabis brand. Aphria's CBN-dominant oil is made from broad-spectrum cannabis distillate and contains 30mg CBN per mL and 10mg THC per mL (in a 50mL container).
• Manitoba Harvest and Whole Foods Market established an exclusive agreement on April 6, 2022, offering the brand's Hemp+ Matcha and Supergreens powders exclusively to Whole Foods Market locations across North America.
• Tilray Brands and Hexo Corp. announced a planned strategic agreement on March 3, 2022, to bring Canada's top two cannabis market share leaders together to improve operational efficiency and product innovation for the benefit of customers, shareholders, and the cannabis industry.
• Tilray unveiled a new corporate name, Tilray Brands, Inc., on January 10, 2022, representing the company's transformation from a Canadian limited partnership to a worldwide consumer packaged goods powerhouse with a market-leading portfolio of cannabis lifestyle and CPG brands.

Key Risk Analysis

• Foreign exchange risk: The drop in distribution revenue was caused by the impact of changes in the Euro/USD exchange rate, which resulted in a UDS 7 million decline. Therefore, FX risk is one of the primary risks faced by the Tilray brands Inc. affecting its operations and profitability from international business.
• Cash Runaway risk: A cash runway is the amount of time it would take a firm to run out of cash if it continued to spend at its current rate. The company's cash and cash equivalents were USD 279.21 million as of the quarter ended February 28, 2022, compared to USD 488.47 million as of May 31, 2021, a decline of USD 209.26 million within a year, implying a cash runway of 1.33 years as of February 28, 2022.

Valuation Methodology: EV/Sales Multiple-based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past nine months, MUX's share price has corrected by 70.03%. The stock is currently leaning towards the lower end of its 52-week range of USD 3.89 to USD 23.04. The stock is currently trading below both short-term (50-day) SMA and long-term (200-day) SMA, but as can be seen in the chart below even if the price is falling but the RSI (37.37) is rising, depicting losing momentum for the bears and expectations of a trend reversal soon. The daily price chart also shows the formation of a double bottom pattern also a sign of trend reversal. We have valued the stock using the EV/Sales multiple-based relative valuation method and arrived at a target price of USD 4.93. We believe the firm is selling at a premium to its peers because of strong fundamentals and robust earnings hence we predict the stock will rise soon.

Considering the strong fundamentals, technical analysis, associated risks, and current valuation, we give a "Spec. Buy" recommendation on the stock at the current price of USD 3.91 down 2.85% as of June 08, 2022, at 12:45 PM PDT.

1-Year Technical Chart, as of June 08, 2022, at 12:45 PM PDT. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

*Entry Price as of June 08, 2022, at 12:45 PM PDT.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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