Tilray: smoke and fire

By Source: FT.com | septembre 19, 2018

Fading American food brands have tried to save themselves with hipster coffee, energy drinks and healthy snacks. Their ultimate saviour may be a little edgier. The hottest stock in the US this week has been cannabis producer Tilray. The Canadian company’s shares shot up 50 per cent on Wednesday to $230, implying a market capitalisation of $22bn. Its initial public offering was priced in July at $17. The stigma surrounding marijuana for both medicinal or social use is evaporating in the US. Slow-growth consumer companies need to act fast to capitalise on the social shift.

The seminal moment for mainstream cannabis acceptance came in August when Constellation Brands, producer of Corona beer and Meiomi wine, bought a 38 per cent stake in Tilray rival Canopy. It paid a 50 per cent premium to Canopy’s trading price. Canopy’s shares have more than doubled since then. Large consumer companies such as Coca-Cola and Diageo are now also expressing interest in cannabis extensions.

For all the hype, Tilray generated just $20m of revenue in 2017. The noise surrounding cannabis brings up memories of dotcom hysteria at the turn of the century. But Tilray is established. It has several brands that it markets in Canada, where social use of cannabis will be legal in October. The company has also reached its gross margin target of 50 per cent. While it is not profitable on an operating margin basis, it expects it will eventually hit 20 per cent on that metric.

Still, the current valuation is based on hype, hope and technical factors. The short-seller Citron Research noted that only about a fifth of the company’s shares are freely traded. This can artificially put upward pressure on the share price. Tilray’s ascent comes just as Canada and the US enter into tense trade talks. A consideration of the benefits of cannabis trade collaboration should induce a mellower mood.

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