Tilray (TLRY) stock was higher in pre-market trading Tuesday after a better than expected sales report and a focus on partnerships from management.
The move was helped by the prominence of the company's partnerships with beer giant AB InBev (BUD) for beverages and pharmaceutical giant Novartis (NVS) for medical applications. The commentary largely overshadowed a big miss on earnings per share for the fourth quarter that came in at a loss of $0.33 per share.
"We are still in the early stages of the global transformation of $150 billion worldwide industry," Tilray CEO Brendan Kennedy told investors. "We believe that over the long-term companies such as Tilray with the portfolio of trusted brands powered by multinational supply chain, will win the market by earning the confidence of patients, consumers and governments around the world."
Kennedy noted that Tilray is well positioned to lead the transition based on its partner with "established distributors and retailers to scale distribution of our products further and faster" to a global audience that could help justify the company's hefty market cap for a company with its sales figures.
"In the next year, we anticipate distributing medical cannabis to at least a half a dozen more countries globally through a partnership with Sandoz," Kennedy told analysts. "We also formed a strategic partnership with AB InBev to research non-alcohol beverages containing THC and CBD. The 50-50 joint venture combines AB InBev's deep experience in beverages with our expertise in cannabis products. And each company intends to invest up to $50 million for a total of up to $100 million."
Piper Jaffray analyst Michael Lavery keyed in on these prominent partnerships as the main rationale for his "Overweight" rating on the stock.
"We expect strong industry growth long-term, and we believe Tilray is well positioned to be one of several likely winners, especially given its relationships in medical (Novartis), in the US (Privateer Holdings), and in beverages (AB InBev)," he commented on Tuesday morning.
Lavery set a $90 price target for the stock, suggesting a strong runway ahead for the stock, supported by its high profile partners.
Still, the partnerships that the company touts pale in comparison to its competitors like Canopy Growth Corporation's (CGC) which inked a $4 billion deal with Constellation Brands (STZ) , or Cronos Group (CRON) which received a $1.8 billion check from tobacco titan Altria (MO) .
Additionally, the revenue and profitability problems that the company is carrying makes its market cap a difficult one to justify, even among pot stocks so prone to high valuations.
$TLRY This says everything that you need to know. I challenge anyone to show me a single ounce being sold in the largest Ontario market? pic.twitter.com/1mghgnZ1yG
— Steve Patterson (@StevePTrading) March 18, 2019
For a point of reference, Twilio (TWLO) commands about a market cap just over two times that of Tilray. The two companies are a pertinent comparison as the addressable market in cloud communications is as attractive, if not more attractive, than that available in the nascent cannabis market.
While Twilio is often criticized for its lofty valuation, the company has shown an ability to report profitability in its quarterly results. Tilray has not done this yet. Additionally, Twilio reported over $200 million in revenue in its last quarterly report, with a target set at $1 billion in revenue for the fiscal year 2019. Tilray reported just over $15 million in revenue in the fourth quarter while eschewing guidance.
Pre-market trading appeared to pinpoint partnerships as its main area of focus, clouding the view of the issues in profitability.
It will remain to be seen how long that smokescreen can be sustained as the company continues to compete with companies that command larger cash piles from their own partners.
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