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The Manitoba Harvest Acquisition Saved Tilray Stock This Quarter

InvestorPlace logo InvestorPlace 11/18/2019 Will Ashworth
a close up of a device: The Manitoba Harvest Acquisition Saved Tilray Stock This Quarter© Source: Shutterstock The Manitoba Harvest Acquisition Saved Tilray Stock This Quarter

Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) reported significant losses on Nov. 14. Their revenue totals were also quite scary. Tilray (NASDAQ:TLRY) reported so-so earnings two days earlier. If not for the company’s February acquisition of Manitoba Harvest, a leading player in the hemp foods industry, Tilray stock would undoubtedly have performed a lot worse. 

The Manitoba Harvest Acquisition Saved Tilray Stock This Quarter© Provided by InvestorPlace Media LLC The Manitoba Harvest Acquisition Saved Tilray Stock This Quarter

Tilray generated $120.0 million of revenue in the first nine months of fiscal 2019. Manitoba Harvest, the hemp foods company it acquired in February for $316 million, accounted for 34% of those sales. Adult-use cannabis generated 32% of its sales and Canadian medical cannabis accounted for about a quarter of its revenue.

In Q3, Manitoba Harvest had a profit 0f $4.2 million on $15.6 million in sales, equating to a nice 27% operating margin. 

Tilray had a total operating loss of $23.3 million in Q3, so the cannabis side of the business actually lost $27.5 million on $35.5 million of sales.

So, for every $1 in sales by Manitoba Harvest, it made 27 cents of operating profits. The rest of the business lost 77 cents per $1 of sales.

Manitoba Harvest and Tilray Stock

Overall, Tilray’s operating loss in the quarter grew by 16.5%. If not for Manitoba Harvest’s $4.2 million profit, the loss would have increased by 37.5% year-over-year. 

That’s why I’ve been very positive about Tilray’s acquisition. 

“Manitoba Harvest’s 2018 revenues were CAD$94 million. The (profitable)  acquisition added to Tilray’s bottom line from day one, providing investors with an immediate return on invested capital, not to mention an improved profit-and-loss statement,” I wrote in an article published on June 21.  

“While it’s not a flashy deal, Manitoba Harvest participates in one of the hottest markets (CBD-infused foods) in North America. As consumers realize that hemp-based products containing CBD can be just as effective as cannabis-based CBD products, Manitoba Harvest’s business will see considerable growth.”

Tilray CEO Brendan Kennedy continues to sing the praises of Manitoba Harvest:

“Manitoba Harvest continues to perform well with branded revenue growing 4% year-to-date on an as-reported basis,” Kennedy stated during Tilray’s Q3 conference call. 

“Excluding the impact of a one-time promotion in the prior year, the company has grown 10.5% year-to-date in branded product sales,” he added.

The fact that Manitoba Harvest is doing well doesn’t mean Tilray should abandon its cannabis plans. Clearly, the two are both integral parts of Tilray’s efforts to become a leading cannabinoid-based global consumer packaged goods company. 

The Bottom Line on Tilray Stock

Tilray was getting hammered before it announced its Q3 results on Nov. 12. In the wake of the results, the punishment appears to be continuing. And with the lousy results from Canopy and Aurora now on the table, this downward spiral of marijuana stocks, including Tilray stock, could go on for a while. 

At the end of September, I suggested that investors wait for a catalyst before buying TLRY stock.I still feel that way. 

What catalyst could lift Tilray stock?

My best guess would be the release of CBD-infused drinks,  expected to occur in December, by Fluent Beverages, its joint venture with Anheuser-Busch InBev (NYSE:BUD). 

The CBD products will give Tilray a chance to test its flavors with Canadian consumers. If those drinks are a hit in Canada,, Fkuent will launch full-blown cannabis versions sooner rather than later.    

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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