Anyone who has recently become interested in the cannabis industry will definitely want to consider whether or not to invest in the cannabis industry. tilray brand (NASDAQ:TLRY) It might be a good choice. And with many companies' stock prices rising in a new bull market, now may seem like a particularly attractive time to enter a position.
Meanwhile, public sentiment surrounding cannabis stocks remains somewhere between lukewarm and unfavorable, with the number of people holding the stock down 83% over the past five years. So what is the right move?
Why now is a good time to invest
Bull market conditions, or rising stock prices, have several implications for Tilray. First, in an environment where positive sentiment prevails, outcomes are more likely to lead to higher stock prices, and pitfalls are less damaging than they would otherwise be. Second, a major catalyst, such as marijuana legalization in the United States or the European Union, can provide a far greater boost than if the same event had occurred in a bear market filled with pessimism.
In addition to these factors, investors need to be careful to remain focused on the company's long-term potential, rather than its performance in a bull market, which unfortunately will ultimately come to an end.
In the long run, things are looking good for Tilray, but there's still a lot of progress to be made. Revenues for the second quarter of fiscal 2024 (three months ended November 30, 2023) increased 34% to $194 million on a 117% increase in alcohol sales (over $47 million). . It is now clear that management's decision to diversify into beer and liquor sales was a wise one. In fact, the company is expected to generate free cash flow (FCF) on an adjusted basis within his 2024 fiscal year.
That will be an important catalyst. Nevertheless, it remains unclear whether Tilray's business will be sufficient to turn the business into a cash generator on an ongoing basis. The company has been in the red for the past 12 months, with a loss of $35 million in the most recent quarter.
There are still major challenges to tackle
Despite Tilray's strong position in the North American alcohol industry and the EU's nascent cannabis scene, there's one issue that seems to be tilting it in the wrong direction. That is the ability to access the US cannabis market in the event of cannabis legalization. And that may mean missing out on one of the biggest opportunities that can arise.
In short, the company was looking to enter the U.S. marijuana market by entering into strategic agreements with local multistate companies. medmen The idea was to buy MedMen's debt today and convert it into voting stock when the federal government legalizes marijuana. He was then able to leverage the distribution infrastructure that Tilray had built to serve his in-house alcohol brands and begin to penetrate the market beyond that initial foothold.
However, MedMen was not a healthy company when Tilray acquired it. And now the company is on life support, selling core businesses to keep the lights on. This year, multiple members of the management team, including the CEO, are headed to the field. Also, even if it were not in distress, Tilray would only own a small number of shares if it were legalized, so the best-case overall financial impact could be limited anyway. There is.
Aside from MedMen's issues, it's important to note that Tilray is by no means a safe stock. While it's true that the company is one of the largest multinational cannabis companies, there are many risk factors outside of its control, including when and if legalization will occur. Cannabis prices may rise or fall, competitors may develop preferred products that maintain market share, and investors may view the entire cannabis industry as a group of stocks in a bad light for years. may be.
However, I am confident that this company will be able to figure out its operational inefficiencies in the long run. Additionally, thanks to significant progress in generating revenue from alcoholic beverages, the company has the financial flexibility to survive operations for the time being. That doesn't mean the company's stock will be a winner, but it may one day perform better than it has recently. So if you're willing to hold on to it long enough to see it have a chance to prosper, and you're willing to accept a significant drawdown at this point, your temperament is right for the purchase. But if you want profits in the next five years, don't even think about buying the stock. Even if the future looks bright, and even if a raging bull market is forming, the risks are considerable.
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Alex Karkidi has no position in any stocks mentioned. The Motley Fool recommends his Tilray brand. The Motley Fool has a disclosure policy.
Is Tilray Brands stock a buy in the new bull market?Originally published by The Motley Fool
