In a sector that was craving revenue, it seems like Tilray (NASDAQ:TLRY) stock should be surging. In its first-quarter earnings report, Tilray reported $52.1 million of revenue. That was up 126% on a year over year (YoY) basis.

Instead, the stock is down nearly 50% for the year. That’s because after marijuana stocks took a trip to the moon on gossamer wings, investors started looking at the bottom line. And Tilray’s bottom line is still in trouble. Despite the boost in revenue, Tilray reported a net loss of $184.1 million. That was almost a 600% YoY increase over the $29.3 million it reported in 2019.

Before you can understand why Tilray’s loss is so big, you have to understand the current supply and demand situation as it applies to cannabis.

2019 was a rough year for all marijuana stocks. Many of the top names such as Canopy Growth (NYSE:CGC) are Canadian companies. In October 2018, Canada made marijuana legal for both recreational and medicinal use. As 2019 started, it looked like the marijuana companies would start delivering real revenue.

But the revenue train was slow to get started. Marijuana companies had to wait patiently while Canadian regulators worked through the backlog of applications. By the end of the year, many retail stores were open for business. And that seemed to be particularly good for Tilray.

Tilray initially took an asset-light model. The company said they would rely less on production and more on product development and retailing. In fact, Tilray CEO Brendan Kenney said the company only wanted to grow 5% of its product.

Too Much Supply And Not Enough Demand

Marijuana stocks have two problems. They have too much supply and not enough demand. And that means they can’t get the price per gram down enough to keep away the black market.

So Tilray’s asset-light approach looked to be an ideal “third way” to get to profit. But Tilray couldn’t help itself. In 2019, as part of the company’s $70 million acquisition of Natura Naturals, it purchased a 406,000 square-foot indoor cannabis cultivation and manufacturing facility in Leamington, Ontario.

Now, Tilray is closing the facility in hopes of saving $7.5 million annually.

At first glance, that sounds rational. But a closer look at the balance sheet shows that the move is being made to prevent the company from burning cash. In 2019 the company burned $384.9 million ($32.5 million per month). The company has yet to make a profit and as of March 31 of this year, it had just under $174 million in cash on hand.

The company is pledging to cut $40 million per year. But when the company lost $71 million in just a single month in 2019, it suggests that they need more than that to stop the bleeding.

This adds credence to the idea that selling the production facility may be a signal that the company may not be able to get the financing it needs in the time frame it needs it (about six months). But if it taps the equity markets for financing, it will have a negative effect on the company’s share price.

This is a rinse-lather-repeat moment that investors are growing tired of. Maybe the cannabis companies are the victims of irrational expectations. But the simple reality is that there will likely be consolidation in the cannabis industry. At one time, it looked like Tilray might be one of those that made it through the consolidation phase.

Now, I’m not so sure, and neither are investors. The company is fighting a legal battle on claims of misleading investors and potential insider trading violations.  

And when you look at the company’s revenue increase, only 9% was due to increased marijuana sales. This means that the vast majority of the growth came from Manitoba Harvest. This is Tilray’s wholly-owned subsidiary. Manitoba makes sales from hemp foods.

Now that would seem to fit with Tilray’s asset-light approach, but the company will undoubtedly have to cut its $18 million in marketing expenses. And that would seem to go against an approach of growth through product development and retailing.

Is Tilray Stock a Buy?

 I don’t see how it can be right now. The company simply has too many question marks. And while it’s not likely that the company will go out of business, it’s also not likely that it will be able to trim expenses enough to add meaningful growth to its bottom line.

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