Tilray Earnings: Alcohol Is Increasingly Important but Has Limited Synergy with Cannabis

Key Morningstar Metrics for Tilray Brands

• Fair Value Estimate: $2.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Tilray Brands’ Earnings

Tilray TLRY reported its fiscal first-quarter 2025 earnings, with net revenue growing 13% year over year to $200 million. However, most of that growth came from acquisition in the alcoholic beverages segment, while the cannabis segment’s net revenue declined 13% to $61 million.

Why it matters: Amid the continued challenges in the Canadian cannabis market, Tilray has grown its alcoholic beverages business through acquisition. Alcohol was the sole driver of its revenue growth during the quarter, but we see few synergies with cannabis.

• The revenue decline in cannabis was partly due to the company’s focus on the higher-margin segment of the market rather than competing in the lower end, where price compression has continued. Adjusted gross margin benefited, rising to 40% from 35% a year ago.

The bottom line: We’ll likely reduce our fair value estimates of $2 per share by a mid-to-high-single-digit percentage on lower cannabis revenue, partly offset by better margin. This would leave shares roughly fairly valued, even after the 2.5% decline after the earnings release.

• For investors looking for cannabis exposure, we prefer US multistate operators Curaleaf CURLF and Green Thumb GTBIF. We think the current price undervalues the US market potential.
• Our no-moat rating remains unchanged, as we have yet to see enough evidence of any Canadian peer building a competitive advantage. Moreover, we don’t think alcohol and cannabis have any strategic or operational synergies that could create a moat.

Key stats: The company has issued $94.5 million from its at-the-money equity program to fund continued losses since its inception in May. This leaves about $155 million to be issued.

• Although the use of equity has been value-destructive for most cannabis companies we cover, we think shares are roughly fairly valued at this time, bringing neither negative nor positive effects to our intrinsic valuation.