Tilray Earnings: Decent End to Fiscal 2024, but We See Limited Risk-Adjusted Upside

Key Morningstar Metrics for Tilray Brands

• Fair Value Estimate: $2.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Tilray Brands’ Earnings

Tilray Brands TLRY closed its May-ended fiscal 2024 on a decent note, with full-year net revenue of $789 million that beat our forecast of $754 million. However, the adjusted gross margin erosion in the year for both alcoholic beverages (to 46% from 53%) and cannabis (to 36% from 51%) was slightly worse than we expected.

For fiscal 2025, Tilray has guided net revenue to be between $950 million and $1 billion, with mid-single-digit organic growth and beverages continuing to become a bigger part of sales. Our pre-results forecast included high-single-digit organic growth, and we’re not sure where the rest of the 24% implied by management’s target comes from. We don’t expect to materially change our fair value estimate of $2 per share. Shares look fairly valued, and we see a more attractive risk-adjusted upside in Curaleaf Holdings CURLF and Green Thumb.

Management disclosed that for fiscal 2025, it expects revenue to split roughly 30% alcoholic beverages, 30% cannabis, 30% distribution, and 10% wellness. We see limited synergy between the product lines, especially between alcohol and cannabis. The continued rising contribution from alcoholic beverages increases the company’s bottom line but also creates complications for investors seeking cannabis exposure. Moreover, we don’t see any greater competitive advantage in alcohol than we do in Tilray’s cannabis business.

Meanwhile, Canada remains a difficult market for making consistent profits in cannabis. For example, management cited problems with having a fixed-dollar (rather than a percentage) excise tax. While prices have continued to fall, the excise tax has not fallen. Meanwhile, the country remains saddled with excess production capacity, as evidenced by Tilray dedicating some of its production to vegetables. With little on the horizon to address the problem of too many Canadian licensed producers with too much capacity, we don’t have much optimism.