Tilray (NASDAQ:TLRY) had a disastrous 2019—the stock lost 75.7% of its value. So far, 2020 hasn’t been pretty either for Tilray stock. Year-to-date, the stock is down 66.7%. The stock fell after its losses widened in the fourth quarter. Since the company’s fourth-quarter earnings release on March 2, the stock has fallen by 58.5%. Various other factors, like the coronavirus outbreak, have also impacted the cannabis sector. Currently, marijuana sales and cannabis stocks are surging. Tilray closed with a gain of 6.8% on Tuesday. Will Tilray be able to recover in 2020 amid the COVID-19 outbreak?
Analysts lower estimates for Tilray
Tilray’s fourth-quarter losses compelled analysts to revise the revenue and profit estimates for fiscal 2020 in April. For fiscal 2020, analysts expect the revenue to be around 238 million Canadian dollars compared to 251 million Canadian dollars in March. Analysts even lowered the revenue estimates for fiscal 2021 and fiscal 2022, which is surprising. Industry experts hoped that Cannabis 2.0 products would lead to higher revenue growth and help the cannabis companies recover their 2019 losses.
For fiscal 2021, analysts expect the revenue to be around 375 million Canadian dollars compared to 387 million Canadian dollars in March. For fiscal 2022, the revenue estimate is 512 million Canadian dollars compared to 549 million Canadian dollars in March.
Analysts also expect Tilray to report higher EBITDA losses in fiscal 2020. In April, analysts increased the EBITDA loss estimate to 75 million Canadian dollars compared to 69 million Canadian dollars in March. Analysts hope that Tilray reports a positive EBITDA in fiscal 2021. However, the EBITDA could be as low as 1 million Canadian dollars compared to 8 million Canadian dollars in March. Overall, the fiscal 2022 profitability estimates look good. Analysts hope that Tilray will report a positive EBITDA of 76 million Canadian dollars in fiscal 2022. The gross income also could be lower at 97 million Canadian dollars for fiscal 2020 compared to an estimate of 104 million Canadian dollars in March.
What could have led to the lower estimates?
Tilray’s management stated during the fourth-quarter earnings calls that uncertainty from the FDA about CBD products has challenged the company’s CBD sales in the US. The company also incurred some impairment charges and higher operating expenses, which resulted in higher losses. Tilray discussed that the coronavirus won’t have much of an impact except for the branded vape hardware products.
Initially, there were concerns that the COVID-19 pandemic would impact the marijuana industry. However, marijuana is an essential item. People wanted to stock up on the products amid the lockdown. There was a huge surge in cannabis sales in the US and Canada. Notably, there’s a higher demand for medical cannabis products. However, some places are also seeing higher recreational cannabis sales.
I think that analysts see the surge in cannabis sales as one-time panic buying amid the pandemic. They doubt that the surge in sales will continue. If the pandemic and lockdown continue, cannabis companies could struggle with production, which could lead to a decline in sales despite higher demand. Black market sales could also increase amid these conditions. Analysts might have revised the estimates for Tilray due to all of these factors. Analysts also lowered the estimates for Cronos Group. To learn more, read Cronos Group: Analysts Revise Estimates in April.
Will Tilray recover in 2020?
During the earnings call, Tilray mentioned that it raised $60 million in debt as a capital cushion to survive financial difficulties. We’ll have to see if the company has enough cash to survive the impact of the pandemic as well. We don’t know when the pandemic will end and how badly it will impact cannabis companies.
Canopy Growth’s ex-CEO Bruce Linton thinks that Canopy Growth and Cronos Group are in a better cash position to survive the COVID-19 storm. Linton even thinks that Aphria is in a good financial position. Also, a Raymond James analyst has hope for Cronos Group despite its disappointing fourth-quarter results.
For now, cannabis stocks will enjoy the rise. Cannabis sales continue to rise due to higher demand. Tilray closed with a gain of 6.8% on Tuesday, while Cronos Group (NASDAQ:CRON) closed with a loss of 2.6%. Meanwhile, Aphria (NYSE:APHA) and OrganiGram closed 1.3% and 0.58% higher yesterday. Hexo declined by 0.35%, while Aurora Cannabis and Canopy Growth (NYSE:CGC)(TSE:WEED) saw gains of 0.08% and 1.1% respectively.
I think that Tilray, like other marijuana stocks, is a “hold” right now. We’ll have to wait and see how things unfold this month for the cannabis sector amid the pandemic. Read What Can You Expect from Marijuana Stocks in April? to learn more.