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Tilray’s Q4 Losses Widen, Cannabis Sector Struggles

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Tilray (NASDAQ:TLRY) reported wide losses in its results for the fourth quarter of fiscal 2019 after markets closed on Monday. The stock closed 6.3% higher yesterday. However, the disappointing results dragged the stock down. Tilray is trading 8.8% lower in pre-market trading today. The company, which cut down its workforce amid the financial struggle, also missed analyst’s estimates in the fourth quarter. Tilray’s results reveal that the battle is on for the cannabis industry.

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Tilray’s losses widen in the fourth quarter

Amid financial struggles, investors and analysts had little hope for exceptional earnings results from any cannabis companies. Aurora Cannabis (NYSE:ACB) didn’t have impressive second-quarter results. However, Canopy Growth’s (NYSE:CGC)(TSE:WEED) earnings were a surprise. The company reported lower-than-expected losses in the third quarter. Investors will likely wonder if it’s the right time to consider buying Aurora Cannabis or Canopy Growth stock.

Tilray reported year-over-year revenue growth to $46.9 million from $15.5 million during the same period last year. However, the revenue missed analysts’ estimates by a wide margin of 15%. Analysts expected revenue of around $55.3 million in the fourth quarter. Growth in hemp products, the Canadian recreation cannabis market, the Manitoba Harvest acquisition, and growth in international medical markets drove the company’s fourth-quarter revenue. The total cannabis kilogram equivalents sold also showed an increase of 446% to 35,380 kilograms compared to 6,478 kilograms the previous year.

The company also recorded an EBITDA loss of $35.3 million. Tilray reported a net loss of $219.2 million or $2.14 per share compared to a loss of $31 million or 33 cents per share in the same quarter last year.

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Overall, Tilray’s revenue grew from $43.1 million to $166.9 million in fiscal 2019. However, the revenue missed analysts’ estimates of $174.7 million. The EBITDA loss for fiscal 2019 was around $89.8 million. The EBITDA losses for the fourth quarter and fiscal 2019 were higher than analysts’ expectations.

What led to losses in the fourth quarter?

Tilray was already struggling with financial difficulties due to declining revenues in the cannabis space. Recently, the company announced a 10% reduction in its workforce to keep its business afloat. Tilray’s fourth-quarter results were challenged due to the continuous rise in illicit cannabis sales, which impacted legal cannabis revenues. Also, sales of CBD products are still challenging in the US. First, the FDA hasn’t allowed the use and sale of CBD products. Second, the market size is smaller in the US for cannabis products. Not many states have legalized marijuana yet.

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Tilray also reported a non-cash charge of $112.1 million related to the impairment of an agreement with the Authentic Brands Group. The group thought that the company should slow down its investments in the US CBD space until there’s more clarification from the FDA. MarketWatch reported that Tilray’s reason for the investment in 2019 was to get its cannabis products into more retail outlets around the world.

The company said that increased operating expenses due to growth initiatives, the expansion of international teams, and the addition of the Manitoba Harvest and Natura Naturals businesses resulted in net and EBITDA losses. However, the company has raised $60 million in debt as a capital cushion to survive financial difficulties.

Tilray and peers’ stock performance

Like other cannabis stocks, Tilray’s stock price couldn’t survive the chaos last year. In 2019, the company hit rock bottom and declined 75.75. Besides the industry headwinds, Tilray faced some scandal news, which impacted its stock price. In 2020, Tilray’s stock price has returned -10.3% year-to-date. Also, Aurora Cannabis stock closed with an increase of 1.4%, while Canopy Growth closed with a loss of 0.85% on Monday.

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