(TLRY 58.62, +7.12, +13.83%)
is at new highs after reporting its first quarter as a publicly traded company.
Second quarter financial results show promise -- the company reported a small net loss with revenue up 95% to $9.7 mln, but Tilray is far from an earnings story right now.
It's all about the long-term opportunity in a burgeoning field for this vertically integrated cannabis company.
After Constellation Brands (STZ) made an eye-catching $4 bln bet on Canopy Growth (CGC), investors are looking to Tilray as the best way to play the budding cannabis opportunity.
Perhaps the most important comment on the earnings conference call last night was from Chief Executive Brendan Kennedy, who said ‘I definitely expect more strategic investors to enter this industry in the coming months'. Mr. Kennedy is the co-founder of Privateer Holdings, a private equity firm that owns 98% of Tilray.
He said cannabis will disrupt the pharmaceutical, alcohol, food and beverage, and tobacco industries.
Tilray is investing methodically and aggressively in the space. Mr. Kennedy said Tilray is well positioned for increased long-term success, expanding in Canada and internationally for medical and adult use cannabis. Tilray will continue to forge partnerships to secure a market position. The company is partnered with two of Canada's largest pharmacy chains and Sandoz Canada, a unit of drug giant Novartis.
Tilray said legalization is happening faster than they had expected. Medical and recreational legalization across jurisdictions globally will continue to drive interest in the space. Germany is following Canada's lead in that regard. The largest country in the European Union (EU) medical insurance coverage after legalizing cannabis for medical purposes, setting up a favorable regulatory framework.
The company expects almost every country in the EU will legalize marijuana for medical purposes in the coming years. Brendan Kennedy also thinks we are a lot closer to federal legalization in the U.S. than most people realize.
Tilray said it is well positioned to take sizeable share of a market approaching $150 bln with a 50% gross margin and 25-30% EBITDA margins.
At $59/share, the market capitalization is roughly $5.5 bln, so the stock is trading at ~35x next year's sales estimates, which assumes revenue growth accelerates to 278% in 2019 (from 101% this year) as recreational legalization in Canada boosts growth.
Clearly, investors are more focused on the company's long-term potential in the cannabis industry rather than any near term financial metrics.
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