Tilray's [TLRY] share price soared on Friday as the prospect of a Joe Biden presidency looked increasingly likely. Under Biden, it is expected that cannabis sales will be approved on a Federal level — something that’s long been seen as a necessary step on the path to profitability for the likes of Tilray’s share price. On a more local level, the election saw the electorate vote to legalise recreational marijuana sales in a number of states, something David Culver, head of government relations at Tilray rival Canopy Growth, described to CNBC as “a very historic night for cannabis reform”.
With Biden and running mate Senator Kamala Harris poised to take office in January, the cannabis industry could be about to take off in the US. Against this background, Tilray’s share price is set for some volatility, with Q3 earnings being released this week.
When is Tilray reporting?
What does a Biden presidency mean for Tilray's share price?
Tilray’s share price could be going cheap, especially as more states legalise cannabis sales. In last Monday’s election, voters in New Jersey, Arizona, Montana and South Dakota voted to legalise recreational marijuana. In South Dakota and Mississippi voters voted to legalise medical marijuana sales. That means 1 in 3 American adults are now able to legally buy and smoke cannabis, totalling 110 million individuals.
The next step would be to legalise use at a federal level. Democratic vice-president elect Kamala Harris has said that marijuana would be decriminalised at a federal level under a Biden administration. Should that happen, Tilray’s share price could benefit, along with other stocks in the sector. They will be able to borrow more easily from banks and financial institutions and wouldn't be taxed on gross profits.
“Access to safe banking will transform the industry, freeing up capital markets for investment and reducing the risk of operating a cannabis business,” Keith Cich, co-founder of cannabis-related products manufacturer Sunderstorm Inc., told Reuters in October.
"Access to safe banking will transform the industry, freeing up capital markets for investment and reducing the risk of operating a cannabis business" - Keith Cichm Sunderstorm Inc. co-founder
Focus on profitability in results
The cannabis sector is notoriously unprofitable. Tilray and other cannabis companies have huge debt piles, so investors are essentially betting that profits will come once US markets open up through legislation. This would open a huge addressable market and change how these companies are taxed. As that reality edges closer, Tilray’s share price post-earnings will largely depend upon proof of improving efficiency.
Last quarter, Tilray said its focus was on profitability. That quarter saw revenue increase 10% to $50.4m year-on-year, but losses topped analyst expectations. Adjusted EBITA loss came in at $12.3m, with revenue hit by lower sales due to the pandemic forcing some store closures. Tilray reported cost savings of $13m, saying it was on target for $55m in savings this year. If it can continue to reduce losses, Tilray’s share price could see a post-earnings boost.
Tilray's savings target for 2020
Investors should also keep an eye out for numbers coming from Tilray’s international medical arm, which saw a 349% jump in revenue last quarter, going from $1.85m to $8.3m.
For the third quarter, Wall Street is expecting Tilray to post a $0.21 loss per share, down from the $0.36 loss per share seen in the same period last year. Revenue is pegged at $54.88m, a 7.4% increase on the $51.1m seen last year.
Among the analysts tracking the stock on Yahoo Finance, Tilray’s share price has a $7.77 average target. Hitting this would see a 19.3% downside on the current share price (as of 6 November’s close).
|Operating margin (TTM)||-126.82%|
|Quarterly revenue growth (YoY)||10.10%|
Tilray's share price vitals, Yahoo Finance, 9 November 2020