TLRY - May 2024 Watchlist: Top Canadian Cannabis Stocks Heating Up the Market
2024-05-14 09:30:52 ET
Key Canadian Cannabis Stocks to Watch in Mid-May 2024
As we explore the bustling Canadian cannabis market, several marijuana stocks stand out this week, warranting a closer look. These companies, thriving amid a globally expanding industry, have shown resilience and innovation. Recent statistics reveal the global cannabis market could reach USD 197.74 billion by 2028, according to Grand View Research. This forecast underscores significant growth potential, driven by increasing legalization and medical usage.
In the U.S., momentum for cannabis legalization continues to build. Just this week, headlines celebrated new legislative efforts aimed at federal decriminalization. This movement boosts prospects for Canadian firms eager to expand into the U.S. market. For investors, employing technical analysis and proper risk management remains crucial. These tools help navigate the sector’s volatility, enhancing the potential for informed and successful investment decisions.
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Canadian Cannabis Stocks with Potential for Mid-May Gains
- Tilray Brands, Inc. ( NASDAQ: TLRY )
- Canopy Growth Corporation ( NASDAQ: CGC )
- Village Farms International, Inc. ( NASDAQ: VFF )
Tilray, Inc.
One of the industry’s pioneers in the global cannabis market is Tilray, Inc. The company has established itself as a well-known brand, having been founded with the objectives of leading, motivating, and innovating. Distribution, production, cannabis cultivation, and research are the company’s top focuses. They are versatile because their efforts span the adult-use and medicinal sectors.
Tilray’s international operations have allowed it to expand its reach significantly. With retail sites in key states, they have a significant presence in the US. Their portfolio has a significant amount of representation from Florida, Colorado, and California. These states are strategically significant due to their vast cannabis markets and progressive cannabis laws. Globally, Tilray’s influence is apparent. In more than a dozen countries, they have partnerships and supply arrangements. Tilray’s global presence has allowed them to be positioned as a leader in the cannabis market.
Financial Highlights – Second Quarter Fiscal Year 2024
Tilray Brands, Inc. (TLRY) has emerged as a significant participant in the global cannabis and consumer packaged products industries, with a record Q2 net sales of $194 million for the fiscal year 2024—a 34% increase over the previous year. This expansion strengthens Tilray’s dominant position in the cannabis market even more, as the company continues to hold the top spot in Canada’s market share and has had significant revenue growth in both the domestic and international cannabis markets (31% and 55%, respectively). Tilray’s influence in the beverage alcohol sector has also grown. After a 117% increase in revenue, the company is now the fifth-largest craft beer brewer in the US and aims to rank in the top 12.
The company’s financial successes are a component of a larger plan that involves significant yearly savings—estimated at $30–$35 million—from integrating the HEXO Acquisition. Tilray reiterated its fiscal year 2024 guidance, expressing confidence in its financial picture. A notable decrease in convertible debt, an improved capital structure, and market leadership in important product categories for Canada’s cannabis industry are among the operational highlights of the quarter. Through planned expansions, Tilray is strengthening its position internationally in the medicinal cannabis industry.
Federal regulations prevent Tilray from becoming involved in cannabis operations at the moment, but should legalization take place. The company is well-positioned to take advantage of its experience. The company’s growth is also evident in its expanding beverage-alcohol portfolio, which has been bolstered by the acquisition of eight brands from Anheuser-Busch, solidifying its presence in the craft beer market and signaling a strong move towards becoming a leading beverage-alcohol company in the U.S.
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Canopy Growth Corporation
Located in Smiths Falls, Canada, Canopy Growth Corporation is a prominent player in the global cannabis industry. Since its establishment in 2013, it has grown to become one of the largest cannabis companies in the world. Canopy Growth manufactures, markets, and supplies cannabis products for both recreational and therapeutic uses. It sells oil, soft gel capsules, infused beverages, dried flowers, and topicals.
Canopy Growth has expanded the number of retail shops it operates under various brands, such as Tokyo Smoke and Tweed, throughout Canada since my last report in April 2023. In states like British Columbia, Alberta, and Ontario that have progressive cannabis legislation, they are widely available. The company’s international activities are growing throughout the United States through partnerships and acquisitions, particularly in states where cannabis use is permitted. There’s a chance some store counts and the states with the greatest presence for the current year need to be updated.
Financial Highlights
The latest financial report for Q3 FY2024 shows notable advancements in Canopy Growth’s operational metrics, particularly emphasizing an increase in gross margins across various segments. The company reported consolidated gross margins of 36%, with Canadian cannabis margins improving significantly to 28% from a negative margin in the previous year. This improvement is largely attributed to more efficient operations and reduced inventory costs. Meanwhile, net revenue tells a mixed story;. However, there was a 6% year-over-year growth when adjusting for the divestiture of the national retail business. Overall revenue still fell by 7% compared to the previous year. Moreover, the World segment saw an impressive 81% growth, driven by robust performance in Australia and Europe, benefiting from new products and improved sales execution.
Canopy Growth also highlighted key product and market expansions, notably with the success of the Storz & Bickel® brand. Launching the new VENTY portable vaporizer led to a 54% sequential increase in net revenue for the brand, alongside record Black Friday sales. Financially, the company has reduced its free cash flow losses by 57% year-over-year, and it decreased its debt by $69MM during the quarter. The CEO and CFO reaffirmed their confidence in reaching positive adjusted EBITDA by the end of FY2024, indicating a strong belief in the company’s ongoing profitability and strategic initiatives. Such statements reflect an optimistic outlook for Canopy Growth’s financial health and market position moving forward.
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Village Farms International, Inc.
Well-known farming company Village Farms International, Inc. is growing into one of the biggest players in North America’s CBD and cannabis markets. The business, established in 1989, first achieved success in the greenhouse vegetable sector before entering the cannabis market with Pure Sunfarms. This strategic shift uses their agricultural expertise to create high-quality, reasonably priced cannabis. They work in the medical and recreational cannabis markets and produce a variety of cannabis products.
Village Farms primarily operates its cannabis business out of Canada, where Pure Sunfarms has established a substantial presence. They do not have traditional retail stores, but their products are distributed through numerous government and private stores across Canada. The company is well-established and offers many goods in several provinces, with British Columbia, Alberta, and Ontario having the highest sales. After hemp was made legal at the federal level, Village Farms is looking into the possibility of using CBD generated from hemp in the US cannabis market. However, legal improvements are a must for its direct retail presence in the US market.
First Quarter 2024 Financial Highlights
In the first quarter of 2024, the company reported a significant 21% increase in consolidated sales, reaching $78.1 million, up from $64.7 million in the first quarter of 2023. This improvement is also reflected in the substantial reduction in consolidated net loss, which narrowed to just $2.9 million, or $0.03 per share, compared to $6.6 million, or $0.06 per share, in the previous year. Additionally, the adjusted EBITDA saw a commendable increase to $3.6 million from a mere $0.5 million. Cash usage was also optimized, with operations nearly breaking even, marking a substantial improvement from a $3.7 million cash use in the prior year’s operations.
On a segmented basis, the Canadian Cannabis divisions, including Pure Sunfarms and Rose LifeScience, showcased robust growth, with net sales jumping 49% to $37.4 million. This segment’s performance was bolstered by a 28% increase in retail branded sales and a striking 181% surge in non-branded wholesale sales. However, international sales dipped by 13%. Despite these mixed results, gross margin decreased to 25% from 34%, impacted by the sale of non-brand-specific inventory. In contrast, the U.S. Cannabis sector, represented by Balanced Health Botanicals, faced a slight downturn, with sales dropping to $4.5 million from $5.0 million and gross margins reduced to 59% from 65%. Adjusted EBITDA in this segment also declined, reflecting ongoing challenges in profitability.
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Exploring Opportunities: Spotlight on Canadian Cannabis Leaders This May
This week, Canadian cannabis stocks such as Canopy Growth, Pure Sunfarms, and Tilray are in the spotlight. These companies are ready to benefit from expanding global and U.S. markets. The global cannabis market is expected to reach USD 197.74 billion by 2028, offering a significant growth runway for these companies. Recent strides toward cannabis legalization in the U.S. could accelerate their growth. As they tap into new markets, these Canadian giants stand to gain significantly. Therefore, investors should closely watch these developments.
Moreover, investors should use technical analysis to gauge momentum. Identifying the critical resistance and support levels of these stocks is crucial. Effective risk management strategies are also essential. These include setting stop-loss orders and monitoring market sentiment. Caution is recommended because the cannabis market is notorious for its volatility. By employing these strategies, investors can better navigate the fluctuating landscape. This careful approach can help mitigate potential losses.
Canopy Growth, Pure Sunfarms, and Tilray each bring unique strengths to their operations. They have strategic initiatives to expand their market share in Canada and internationally. As U.S. legislative developments unfold, these companies are well-positioned. They can capitalize on emerging opportunities. Investors should remain vigilant and use technical and fundamental analysis. This will help them make informed decisions.
Moreover, emphasizing diversification and continuous portfolio assessment will help manage risks. The sector’s dynamics require careful attention. Keeping an eye on regulatory changes and market trends will be crucial. Stakeholders need to maximize returns and sustain growth. This burgeoning industry offers many opportunities. However, the market is also volatile. Thus, a cautious approach is essential. Investors can benefit by staying informed and adapting to changes.