Canadian cannabis firm Tilray (TLRY) has seen its share price plunge over 80% from its February all-time high. Will the stock sell-off further or rebound before this year comes to an end?
This article looks at the key drivers and analysts' outlook for Tilray shares.
How has the stock performed so far in 2021?
The TLRY share price started the year at $8.43 before surging more than 700% to hit a peak of $67 on 10 February. The stock skyrocketed thanks to plenty of attention on social media platforms such as Reddit and Twitter. The retail crowd turned their attention to Tilray ahead of the merger between Tilray and Aphria and a more favourable political landscape in some countries for cannabis producers. After the US elections, the Democrats held both the White House and a majority in Congress, boosting optimism that marijuana could be legalised at Federal level.
However, the hike higher was unsustainable and the TLRY share price has trended lower since, losing 80% and hitting a low of $12.55 on 20 August.
There was a short-lived 62% rally between mid-May and mid-June after Tilray finalised its merger with Aphria. The deal turned the company into the largest Canadian marijuana producer boasting a 17% share of the North American retail market and with annual revenues of $1bn. The stock rallied to a high of $21.43 per share on 9 June before quickly giving up those gains and falling to $13.
There was also a short, sharp rally in July when the stock price jumped 25% on the day following fourth quarter earnings but this rally was also unsustainable, with the share price quickly returning to current levels around $13.
What do Tilray’s latest financial results tell us?
Tilray reported its 2021 fiscal year and fourth quarter results on 28 July. It was the first set of quarterly results following the merger with Aphria, bringing a pleasant surprise for investors – a profit.
In Q4, the company posted net income of $33.6m, or earnings per share (EPS) of $0.18. This is a marked improvement from the $84.3m net loss, or loss per share of $0.39, reported in the same period a year earlier. It was also significantly higher than analysts’ estimates of EPS of $0.12. Tilray also posted an operating profit, or EBITDA, of $12.3m. The turnaround was thanks in part to the reopening of dispensaries post COVID-19.
The business also enjoyed strong revenue growth in the fourth quarter, announcing net revenue of $142.2m. This represented a 25% year-on-year increase. However, this was also well below analysts’ estimates of $199m.
Even so, the results were considered encouraging. Kenneth Shea, BI tobacco and beverage industry analyst at Bloomberg, said:
“The performance this quarter, the first since the reverse acquisition of Tilray by Aphria in May, highlights the diversity of the combined businesses. The resilience of net revenue generated by its cannabis and beverage alcohol segments was positive in light of stubborn pressures on consumers from COVID-19 lockdowns and restrictions.”
US Federal legalisation and European expansion
Neither a megamerger nor Q4 results have been sufficient to revive Tilray’s share price. The stock plunged 6% in August, extending a 19.2% decline in July. However, the company wasn’t alone with the stocks of other players in the sector, such as Sundial Growers (SNDL) and Hexo (HEXO), also experiencing double-digit losses.
The losses have come after a new proposal from congressional leaders in the US to decriminalise marijuana failed to draw sufficient support. Senate Majority Leader Chuck Schumer, along with two Democratic senators, drafted a bill to legalise marijuana at Federal level and also to remove marijuana from the Controlled Substances Act. This would be a key development for Canadian pot companies and open a huge market. However, support for the proposal was lacking, particularly from US President Joe Biden.
Management at Tilray is focused on expanding into the US, making moves to grow its presence there at the same time that the market has projected growth. New Frontier data estimated that the US cannabis market was valued at $20bn in 2020 with projections to reach $43bn by 2025.
In August, Tilray agreed a deal with MedMen, a US cannabis dispensary and delivery service, to buy convertible bonds in the company. These can be converted to a 21% stake in MedMen should cannabis be legalised at Federal level in the US.
However, to achieve its goal of controlling 30% of the US cannabis market, full entry into the US is needed. While the US poses the largest opportunity this goal remains unachievable until marijuana is legalised federally.
Currently, 36 states and the District of Columbia have legalised the medical use of marijuana. Meanwhile, 18 states along with DC have legalised the recreational use of cannabis. Marijuana remains illegal under Federal Law.
Tilray has also been penetrating markets in Europe, particularly Germany, Israel and Portugal. In his interview with New Cannabis Ventures, CEO Simon Irwin said that Tilray could generate $4bn of sales in Europe by the end of 2024. However, these markets are only just starting to open to cannabis, making them both small and uncertain. In Q4, distribution revenue from German CC Pharma fell 10%, although this was most likely due to COVID-19 lockdown restrictions in the country.
TLRY share price analysis: the technical picture
The stock price has been forming a series of lower highs since hitting resistance at $67 in February 2021. It trades below its descending trendline and below its 50 and 200 simple moving averages (SMAs) on the daily chart. For now, the share price appears to have found a floor at $12.43, a level that now offers support.
The relative strength index (RSI) is neutral after rising from bearish territory, suggesting that the sell-off could have stalled.
Any recovery in the share price would need to close over $14.3, the descending trendline resistance, and $14.75, the 50-day SMA. A move above these levels could negate the near term bullish bias. It would take a move above the 200-day SMA at $17 for the buyers to gain traction towards $19.35, the slate June high.
TLRY stock forecast for the rest of 2021 and beyond
The fact that the TLRY share price has actually fallen despite forecast-beating earnings and a megamerger suggests that the key driver for the stock appears to be the progress, or lack of, in federal legislation in the US.
While Tilray commands the number one market share spot in Canada, that leaves little room for opportunity. Whether the company’s share price manages to power ahead from here depends largely on what happens on the US legalisation front.
In her Tilray stock forecast, Claudia Valladares, financial adviser at Kovar Wealth Management, highlighted this point in her note to Capital.com:
“Tilray's share price heavily depends on what the government will decide on cannabis. If they decide to make it legal, then Tilray's share price will likely increase. It's a risky investment, speculative but it's currently at a reasonable price if an investor wanted to get their feet wet in this industry.”
Taylor Kovar, CEO of Kovar Wealth Management and CEO of Money Couple, is more upbeat on the stock’s outlook. In a note to Capital.com, he said:
“I think Tilray has a good future. More ups and downs are expected for sure as legislators continue to battle it out but, in the long run, I think they are a winner.”
On the other side of the fence, in her Tilray stock prediction, analyst Emily Flippen from The Motley Fool also draws the stock’s risky nature and volatility in addition to the financial concerns which affect the business. In a note to Capital.com, she cautioned investors to look past the stock: "Tilray is one of the most widely held cannabis companies, especially among retail investors, but its risk still outweighs the potential for reward. Unlike many of its US-based competitors, Tilray has not been able to generate positive operating income, has taken on substantial levels of high-interest debt, and has a history of impairments and asset write-downs. While Tilray has attempted to ‘roll up’ many of its competitors in the industry, these actions have historically resulted in significant shareholder dilution and substantial losses."
“Tilray’s share price is notoriously volatile so predicting where it may be over the short-term is a fool’s errand. However, what we do know is that management has a poor track record for long-term shareholder returns and serious financial concerns still plague this business. Investors can do better than Tilray."
According to MarketBeat, 12 analysts have issued ratings on Tilray over the past 12 months. Five of them issued a buy rating and seven issued a hold rating. There are no sell ratings resulting in a hold consensus. The average one-year Tilray share price forecast is $19.28. The high price target is set at $26, while the low is at $4.75.
According to the algorithm-based forecasting website WalletInvestor, the stock is expected to rise over the coming year, with the share price closing September 2022 at $53.
By 2026, the site’s Tilray price prediction sees the stock rallying to $64.91.
On the other hand, AI Pickup is less bullish. The service predicts that the stock will average $24.40 per share in 2025 and fall to $20.74 per share in 2030.
Keep in mind that analysts and online forecasting sites can get their predictions wrong. We recommend that you always do your own research and consider the latest market trends and news, technical and fundamental analysis, and expert opinion before making any investment decisions.
How and where to trade TLRY shares in 2021
One way to trade TLRY shares is with contracts for difference (CFDs) on Capital.com. CFD trading allows you to speculate on the movements in the share price without having to own the underlying stock.
CFDs give you the opportunity to try to profit from both positive and negative price fluctuations. If you expect the share price to rise, you can open a long position. If you think it will fall, you can short the stock.
Another advantage of CFD trading is that you can use leverage to open significantly larger positions with a smaller amount of initial capital. However, you should be aware that using leverage also maximises the size of your losses if the share price moves against your position.
Make sure you understand how CFDs work before you start, and never invest money you cannot afford to lose. Learn more about CFDs with our comprehensive guide. Create an account on Capital.com and stay on top of the latest Tilray stock news, price analysis and forecasts to spot the best trading opportunities.
Tilray has experienced high levels of volatility across this year, rallying to a peak of $67 per share before crashing 80% to $13 per share. This volatility and the speculative nature of the stock is not for everyone. Whether the stock is a good fit for your portfolio depends on your personal circumstances, investment timeframe and risk tolerance.
Currently, according to MarketBeat, the consensus rating is hold. Even so, it’s crucial you carry out your own research and analysis of a stock to decide whether it’s a good buy or not.