Tilray, Inc (NASDAQ:TLRY) released its Q4 and full-year results on Monday. The quarter, which was the three months ending December 31, was the first that included recreational marijuana sales for The Company. And the results were very strong – sales of $15.5 million were triple what Tilray generated the same time last year. As Canadian-based marijuana companies have been releasing their earnings, we’ve seen very impressive growth numbers as a result of the new segment of the market opening for business.
The problem for marijuana companies, however, remains cost control.
Tilray, for example, despite seeing incredible sales growth saw its gross margin increase just 7% from last year as cost of sales skyrocketed during the period. And to make matters worse, operating expenses saw even bigger jumps. General and administrative expenses of $13.8 million were not only more than the $1.5 million incurred a year ago, but they were more than total operating expenses for the quarter – $5.5 million. It’s indicative of the high growth that Tilray has been having to manage. And while the costs are inevitable, keeping them under control is going to be paramount for Tilray to be able to ensure it is able to stay out of the red.
This past quarter, however, it was unsuccessful in doing so as The Company reported an operating loss of $22.9 million, more than 10 times then $2.6 million loss that Tilray incurred a year ago.
Big plans for growth
For investors concerned about rising costs, however, it may not be something that goes away anytime soon. In its earnings release, The Company indicated it is still pursuing many different growth opportunities.
Looking ahead, we remain committed to pursuing global growth opportunities and will be disciplined in deploying capital, particularly in the United States and Europe, where we believe we have multiple paths for value creation.
– Tilray CEO Brendan Kennedy
Recently, Tilray acquired Manitoba Harvest which makes hemp-based food products and that’s likely one market it is going to focus on in 2019 now that the farm bill in the U.S. has now paved the way for hemp to be sold. However, the U.S. might still be a longer-term play as there are still obstacles in the way for cannabis, especially with other forms of cannabidiol (CBD) and tetrahydrocannabinol (THC) still being off limits. In the meantime, companies are looking to get into position any way that they can, with cannabis giant Canopy Growth Corp recently making a move into New York State.
Takeaway for investors
We see a lot of the same themes with Canadian cannabis companies – lots of growth, but even higher losses. This makes it all the more important for investors to keep a close eye on cannabis stocks to see which ones are bleeding cash and which ones are stable. With nearly half a billion dollars, Tilray is in okay shape as of the end of the year but rapid expansion can quickly chip away at that tally.
The bigger problem, however, is when a company triples its sales and sees minimal benefit in its gross margin. And it’s definitely an area I would definitely keep a close eye on for next quarter.