The world is going to pot. Or, more specifically, the whole world seems to be smoking it. Last month, Canada legalized recreational marijuana, setting Oct. 17 as the first day for sales. That makes our great neighbor to the north only the second country in the world to completely legalize it, following Uruguay. The African country of Lesotho shipped weed to Canada earlier this year. Vermont became the ninth state in the United States to allow recreational marijuana, and there are 30 states with some form of medical cannabis. The federal government is mulling the idea to remove ganja from Schedule 1 classification, especially after the Food and Drug Administration approved the first cannabis-based drug, which is used to treat seizures. There is a strain named after Tommy Chong. No wonder so many companies are going public, with Canada-based Tilray the latest to offer a cannabis stock through IPO on the NASDAQ.

A New Cannabis Stock for U.S. Investors

The Tilray IPO

Eyeing a $100 million IPO at an unspecified date in the future, Tilray is headquartered in Nanaimo on Vancouver Island in British Columbia. It has additional offices in Seattle, Toronto, Berlin and Sydney, along with licensed cultivation facilities in British Columbia, Ontario and Portugal, and a new manufacturing facility in development in Ontario, Canada. After all the paperwork and construction are wrapped up, the company expects to have more than 900,000 square feet of production space worldwide by the end of the year, with the potential to quadruple that if everything goes according to plan. (That’s almost 1 million square feet, and regular readers might recall just how big that is.) Here’s a look at Tilray’s global operation:

There are currently 112 Health Canada-licensed producers of medical cannabis, so it’s not like Tilray is operating in a vacuum. And it seems like just about all of them are going public, as many have been working to ramp up production in anticipation of full legalization this year. Canopy Growth Corp. took the lead in 2014 when it was listed on the Toronto Stock Exchange and has grown to be the world’s biggest marijuana stock. The company’s market cap stands at about $6 billion, and it became the first marijuana stock to be listed on the New York Stock Exchange (NYSE:CGC) when it got called up to the big leagues in May. It wasn’t even the first cannabis company to list on a legit U.S. exchange. That honor goes to Cronos Group (NASDAQ:CRON).

Cannabis Company Tilray Growing Global Operation

Now Tilray. We didn’t know much about this company but learned a few interesting tidbits along the way:

Its medical products, including oil, are currently available in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand and South Africa. That certainly gives it a global presence that we would guess is matched by very few companies today, aside from growers like Canopy Growth.

Tilray is licensed to cultivate cannabis in Portugal, giving it a foothold in Europe, where countries like Spain have developed a thriving marijuana business despite some legal challenges.

It has an agreement with a Canadian division of Novartis ( NYSE:NVS ) to market its non-combustible products to healthcare practitioners and pharmacists and to co-develop new cannabis products.

In Germany, it has partnered with a cooperative comprised of about 9,000 pharmacists with a network of 16,000 pharmacies throughout Germany to distribute its full-spectrum medical cannabis extracts, which are consumed orally and contain additional active cannabinoids and terpenes in addition to THC and CBD.

The company, of course, is looking to capitalize on Canada’s new adult-use laws when they go into effect in October. A report from global accounting firm Deloitte said the retail market could be worth up to $8.7 billion. Tilray has already been wheeling and dealing, entering into agreements to supply the province of Quebec, the territory of the Yukon and the Northwest Territories, as well as a letter of intent to supply the province of Manitoba. Additional deals are in the works with Alberta, British Columbia and Ontario, as well as provinces in Atlantic Canada.

Looking at the Numbers for Tilray Cannabis Stock

That all sounds great but what’s actually happening in the dollars and cents category? You might be shocked to learn that Tilray is far from profitable, as you can see in the chart below, and has yet to turn a profit since it started operating in 2014. In 2017, revenues hit $20.5 million, which was a 62 percent increase from 2016—so the company is selling product, and more of it from year to year. Its net loss was about $7.8 million last year, on par with the previous year. The first quarter of 2018 has been particularly bloody, with losses of $5.2 million as of March 31. Its total deficit sits at $45.6 million, with cash and cash equivalents of $12.1 million, along with $29.5 million in short-term investments.

That’s quite the jump from where it was at the end of 2017 when Tilray only had about $2.3 million cash in hand. A $55 million Series A funding round in February obviously helped restock the warchest, as Tilray assumedly plans to continue bleeding money while expanding as quickly as possible in order to seize prime real estate during the global cannabis land-grab for market share. Consider that nearly 30 countries have medical cannabis on the books and Tilray operates in about a third of those already.

Its recent losses point to a company trying to grow exponentially. General and administrative expenses, for example, increased by $2.8 million in the first quarter of this year compared to 2017, a jump of 181 percent. About $1.2 million of increases involved professional fees related to legal, audit, human resources and IT services to support its expansion (and upcoming IPO). Another $1.2 million was spent on starting new facilities, including its production site in Portugal. The rest of the money went to pay its holding company, Privateer Holdings, as part of Tilray’s weird corporate structure that’s probably in place to help the executives turn a personal profit while the company goes through its growing pains.

Canadian Cannabis Company Tilray Invests in Extracts

Tilray does seem to be thinking long term, betting that extracts (what it refers to as non-combustibles) and oil are where the money will be. It has some data to back that up. According to Health Canada, over the past six quarters, ending last December, dried cannabis sales had a compound quarterly growth rate (CQGR) of 8 percent compared to 39 percent for cannabis oil. Last year, Tilray launched new extract products and formulations, including capsules. The sales reflect that emphasis, with 19 percent of revenue coming from extracts versus just 9 percent in 2016. That represented a quadrupling of revenue from extracts, jumping from $1.1 million in 2016 to $4 million in 2017.

They’ll need the income obviously, given the debt, not to mention shifting sales to the wholesale market, which shaves money off the bottom line when it comes to per gram costs. The good news is that Tilray has demonstrated it can get its production costs down: The average cost per gram sold declined from $4.04 in 2016 to $2.84 in 2017, which represents an improvement of 30%. Tilray said the decline in average cost per gram sold was primarily due to its Nanaimo facility reaching full capacity and increased production yields. They also mention “driving” post-harvest efficiencies through “automation” (really stoned trimmers?) in trimming, drying, extraction and fulfillment.

While the first quarter of this year saw its costs creep back up from where they were a year ago, from $2.48 to $2.81, those numbers might improve as the company completes large-scale greenhouse growing operations in Canada and Portugal. For example, its High Park Farms facility is anticipated to represent an investment of up to $30 million, featuring 13 acres of greenhouse on 100 acres of property in Enniskillen, Ontario, which isn’t nearly as remote as it sounds, 90 miles from Detroit. While no one can predict long-term demand, the short term has been smoking. So much that Tilray had to source product from other licensed producers this year, which understandably drives up costs.

Conclusion

It’s certainly not unusual for companies to remain unprofitable for years. Amazon is a prime example, and it’s generally the other business units like Amazon Web Services and marketing that generates most of the money, not retail sales. One of the world’s most valuable private companies, Uber, is far from profitable, and there is widespread speculation that it will IPO in the next year or two. And, like Amazon, Tilray is diversifying, putting R&D dollars into developing its extracts line. It is involved in about a half-dozen clinical trials in Canada and Australia, including some phase 2 and 3 trials for using cannabis medicines for treating nausea from chemotherapy or helping veterans deal with PTSD.

Of course, we’re not suggesting Tilray is the next Amazon. It’s just weed, after all. If you’re really jonesing to put money into weed. Don’t. But if you really can’t help yourself—like choosing from a big bowl of Laughing Buddha or going to work—then maybe take a closer look at investing in a cannabis stock like Canopy Growth (NYSE:CGC) now that it has jumped on the NYSE. Or wait until we dive into that topic in a future article.

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