Tilray and Cronos Group: A Valuation Update



Since the beginning of August, Tilray (TLRY) and Cronos Group (CRON) stocks have fallen 21.4% and 16.3%, respectively. On August 13, Tilray reported better-than-expected revenue in its second quarter. However, its net losses were larger than analysts’ estimate. The company’s growth initiative investments and selling, general, and administrative expenses increased its net losses. These results and weakness in the cannabis sector due to regulatory issues dragged down Tilray stock.

On September 3, Cowen analyst Vivien Azer lowered her target price for Tilray by $90 to $60 while maintaining its “buy” rating. However, she said the decline in Tilray’s stock price had created a buying opportunity. According to Bloomberg, Azer’s optimism then boosted Tilray stock.

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On August 8, Cronos reported its second-quarter earnings. Whereas the company beat analysts’ revenue estimate, its operating losses were higher than analysts had expected. Additionally, the company expects its operating losses to rise further in this year’s second half, boosted by research and development, sales and marketing, and other growth initiative investments. This guidance appears to have dragged down Cronos stock. Since August 1, the ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) have fallen 9.8% and 7.9%, respectively.

Comparing TLRY’s and CRON’s forward EV-to-sales multiples

Although Tilray’s and Cronos’s forward EV-to-sales multiples have also fallen, the multiples are still higher than their peer group’s (12 cannabis companies) median value of 4.58x. Since July 31, Tilray’s forward EV-to-sales multiple had fallen from 11.92x to 9.74x, significantly lower than its historical average of 49.13x.

As of yesterday, Cronos’s forward EV-to-sales multiple had fallen to 14.18x from 22.1x on July 31. It current multiple is also significantly lower than its historical average of 22.28x.

Forward EV-to-EBITDA multiples

Analysts expect both Tilray and Cronos to report negative EBITDA in the next four quarters. We expect the companies’ growth initiative investments to increase their operating expenses while lowering their EBITDA. As of yesterday, Tilray’s forward EV-to-EBITDA multiple was -150.3x, lower than its historical average of 528.7x. Meanwhile, Cronos’s forward EV-to-EBITDA multiple of 864.4x was higher than its historical average of 16.91x. Peers’ median EV-to-EBITDA multiple was 12.3x yesterday.


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