Adam Jackson
Against the backdrop of a tumbling sector, Tilray’s fourth-quarter and full-year financial results for 2023 were dynamite.
The company reported better-than-expected top-line results across all segments. The adult-use cannabis segment recorded its best revenue generation in nearly eight quarters despite the challenges of price deflation.
Irwin Simon, Tilray’s CEO, said that the company faced around $30 million of price compression throughout fiscal 2023, but he believes that prices have now stabilized.
“In Canada, within our cannabis segment, Tilray remains the market share leader with approximately 13% share in the month of June and July,” he told investors on a recent earnings call.
Growth Drivers
Simon credited the improvement in the company’s adult-use cannabis segment to several factors: product innovation, improved distribution, and increased education for consumers and budtenders about its brands. The CEO also highlighted the positive mix shift in mainstream flower presence and emphasized the focus on innovation as a key driver of profitability.
Blair MacNeil, who runs Tilray’s Canadian operations, echoed some of the same sentiments regarding the growth in the company’s adult-use cannabis segment.
“We’ve really improved our distribution. I think what’s important too is our boots on the street working with our budtenders and getting them educated about Tilray Brands,” he said.
MacNeil also emphasized the role of innovation in paving a path for profits.
“In Q4, we had 40% of our sales come from innovation. We had 121 new products launch in fiscal ’23 and we’ve got a tremendous pipeline built for the future,” he added.
That future includes results from the recent acquisition of Hexo. MacNeil reported that the integration has been progressing smoothly, and management has already achieved synergies and savings by optimizing costs within just one-and-a-half months of owning the business.
Simon and MacNeil both said they expect ongoing consolidation of the industry and government intervention on pricing to help stabilize prices. And as the industry evolves, they envision an opportunity to optimize revenue rather than solely relying on pricing.
“I don’t think we’re far away from that environment,” MacNeil said. “If you look at the capacity in the industry over the last 12 months even, there’s been a lot of capacity pulled out. So I do think the industry is going to stabilize from an inventory standpoint.”
Gaining Credibility
A look at cannabis stock trends shows that, across the industry, confidence in the public operators has waned. It’s a trend that Tilray is looking to buck.
The company wants to gain the confidence of institutional investors who, according to CFO Carl Merton, would only invest in Tilray given its sound strategic plan, reliable management team, and strong balance sheet.
To that end, Tilray and Canadian cannabis sales broker Great North Distributors reaffirmed their partnership through a renewed national brokerage agreement, the companies announced Thursday.
Great North will remain the only representative for Tilray’s recreational cannabis products in Canada, except Quebec. The deal includes popular brands such as Good Supply, RIFF, Solei, and Canaca.
Under this renewed four-year deal, Great North plans to make big investments in Tilray – expanding its workforce across all regions, upgrading resources, educating retail staff about the brands, and improving data capabilities to help retailers boost their sales.
These types of partnerships offer Tilray flexibility to adapt quickly as the Canadian cannabis market changes.
The profitability of cannabis companies has been a topic of debate, particularly in Canada, where investors have been battling over a market that didn’t boom as anticipated. Tilray managed to reverse a previous year’s nearly $7 million loss into a $67 million gross profit in the fourth quarter.
Merton also pointed to the recent refinancing move in late May, which not only beefed up Tilray’s balance sheet, but also secured a very attractive (by industry’s standards) lower fixed interest rate of 5.2% for them.
Beyond Cannabis
Another key driver of Tilray’s success is its diversification approach.
Tilray has grown from a Canadian cannabis company making about $50 million in 2018 to a diversified company with nearly $630 million in revenue and close to $500 million in cash and securities. That diversification includes:
- Medical and recreational cannabis
- Alcoholic beverages
- Wellness
- Medical distribution businesses
Delays in cannabis legalization in the U.S. and Germany have pushed the diversification strategy forward.
“Boy, have we come a long way,” Irwin told investors. “Today, Tilray Brands is one of the most diversified global cannabis lifestyle and CPG companies with four distinct and complementary business segments.”
Tilray’s U.S. beverage alcohol segment includes brands like SweetWater Brewing Company, Montauk Brewing Company and Alpine Beer Company. For fiscal year 2023, the beverage alcohol segment grew 33% to $95.1 million. During the quarter, the segment showed additional promise with $32.4 million in net revenue, up 42.6% from the prior year quarter.
The wellness segment, represented by the Manitoba hemp business, has a market share greater than 50% in the U.S. and almost 80% in Canada.
Altogether, the results represent important milestones for Tilray, suggesting the company’s capability to extend beyond its core business and leverage its expertise in the consumer packaged goods sector.
In addition, the company’s successful foray into alcohol could further position it as a diversified player in the CPG sector, providing additional revenue streams and helping to insulate the business against fluctuations in the cannabis market.
