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Can Tilray’s share price reach a new high?

The green rush has caused the Tilray [TLRY] share price to surge in 2021. Will a new line of medical goods help the Canadian cannabis company’s stock go higher?

Although the Tilray share price is down a substantial 73.9% from its 52-week intraday high of $67, recorded on 10 February, to $17.47 at the close of trading on 17 June, it’s still up over 115.9% year-to-date. The Tilray share price is also up 296.1% from its 52-week low of $4.41, which it fell to during trading on 24 September 2020.

Driving the growth in the Tilray share price has been its popularity among retail investors and users of Reddit. In a recent interview with CNBC, Irwin Simon, the company’s CEO, told the channel: “I’m very, very supportive. We love them… That group of Gen Z that are out there trading within our stock today, they’re technology savvy. They’re retail savvy. They’re brand savvy. You want them as investors.”

296.1%

Tilray's share price rise since its 52-week low

  

Broader spectrum

As a potential meme stock — those that see rises fuelled by discussions on social media sites — Tilray currently doesn’t have enough short interest for a short squeeze (circa 7.02% of float versus 20.4% in GameStop [GME] and 36.7% in Clover Health [CLOV]). For now, any upwards movement in the Tilray share price is likely going to depend on the success of its product range and whether the US will legalise the product nationwide.

The company has just announced a new line of medical products: Symbios. This includes oils, pre-rolls and dry flowers. According to a press release, the aim is to provide medical patients with “a broader spectrum of formats and cannabinoid ratios at a fair and reasonable price”.

Medical cannabis generally yields much higher margins than recreational cannabis. While the consumer base might be smaller, those who rely on medical cannabis — to manage chronic pain, for example — are likely to use it more regularly and for longer.

$15.489m

Tilray's medical cannabis sales in Canada fiscal 2020 - a 23% YoY rise

  

Tilray’s full fiscal year 2020 and fourth-quarter results, published in February, showed that Canada medical cannabis sales in fiscal 2020 increased 23% year-over-year to $15.489m, while international sales jumped an impressive 153% to $33.886m — the biggest level of growth in any segment. Overall, Tilray’s total revenue for the fiscal year was up 26% to $210.482m.

Despite the strong medical segment growth, the company reported a net loss of $271.1m, down from a loss of $321.2m in 2019.

 

Pot luck?

The cannabis industry is notoriously unprofitable. While there are companies that do post profits, many act like growth stocks and are trying to scale aggressively in anticipation of cannabis being legalised in the US.

Tilray is confident that US lawmakers will give cannabis the green light within the next couple of years. In doing so, its medical segment will undoubtedly receive a significant boost.

The company’s recent merger with Aphria, which has created the world’s biggest cannabis company by revenue, should allow Tilray to capitalise on any market opportunities in the US. Following its completion on 3 May, Pablo Zuanic, analyst at Cantor Fitzgerald, upgraded the stock to overweight, according to a note to clients seen by MarketWatch.

Zunaic pointed towards Aphria’s number one position in recreational cannabis in Canada and Tilray running “ahead of peers in the export cannabis markets” as signs of strength. However, he expressed some doubts about Tilray’s plan to capture a 30% share of the Canadian marijuana market (it's currently around 17.3%) and lowered his target for the Tilray share price from $30.25 to $22.

John Zamparo, an analyst at CIBC, downgraded his rating from overweight to neutral and maintained a target on the Tilray share price of $25. In a note to clients seen by The Motley Fool, he argued that the Tilray share price doesn’t have much upside from its current level. Even if the US Senate were to pass a legalisation bill by the end of 2021, “it’s uncertain to lead to meaningful change this year.”

“In recent months, Canadian [cannabis] stocks have traded in a way that doesn’t make sense. They have traded on false optimism, on hope and on misinformation” - Dan Ahrens

 

On the whole, cannabis as a theme has had a fruitful 2021 so far. Yahoo Finance data shows the Global X Cannabis ETF [POTX] has a year-to-date daily total return of 53.9%; the Amplify Seymour Cannabis ETF [CNBS] has a return of 52%; and AdvisorShares Pure Cannabis ETF's [YOLO] return is 25.3%.

Nevertheless, Dan Ahrens, chief operating officer and portfolio manager at AdvisorsShares, warns some cannabis stock prices could be overbaked. “In recent months, Canadian [cannabis] stocks have traded in a way that doesn’t make sense. They have traded on false optimism, on hope and on misinformation,” he told the Financial Times back in February.

Disclaimer Past performance is not a reliable indicator of future results.

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*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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