Tilray (TLRY) is a ray of sunshine on an otherwise cloudy week in the market. A green ray of sunshine.
The stock is benefiting from three announcements this month, two of which are major and came this week.
The biggest boost to the stock has come from the announced partnership with Anheuser-Busch InBev (BUD) . Both BUD and TLRY will contribute $50 million to research non-alcoholic beverages containing cannabis extracts. These could be drinks with cannabidiol (CBD) and/or Tetrahydrocannabinol (THC). (The latter of those two is what gives people a high.)
Current expectations are Canada will approve CBD beverages in October 2019 along with edibles. By teaming up with Labatt's Brewing, a subsidiary of BUD, the duo could be poised to jump into what is seen as a potentially huge market immediately after legalization.
Tilray isn't the first cannabis company to team up with an alcoholic beverage brewer. Constellation Brands in (STZ) has poured $4 billion into Canopy Growth (CGC) while Molson (TAP) has a joint venture in place with Hexo (HYYDF) for CBD/THC beverages. While not in the same category of beverages, we shouldn't neglect Altria's (MO) $1.8 billion stake in Cronos (CRON) as well. The Tilray-BUD joint venture is another reminder how 11-figure and 12-figure sized companies are aggressively entering the cannabis space.
Unlike Cronos and Canopy, Tilray is putting money into this venture rather than receiving an investment. While that is probably better for the bottom line in the long run, Tilray doesn't possess the same war chest as Canopy and Cronos. This leads me to believe we'll see a cap raise very soon. The BUD joint venture will eat up about half of Tilray's cash.
In a smaller move, the company invested $7.5 million into ROSE LifeSciences to expand much needed supply. Again, another outflow of cash. Good for the long-term vision, but pushing the need for additional capital.
Last on the list of recent moves is the partnership with Novartis (NVS) branch Sandoz to develop and distribute medical marijuana worldwide. Novartis is going to bring a huge worldwide marketing staff, or feet on the ground as some might call it. This is similar to the BUD deal. BUD offers marketing and distribution worldwide. These combinations will save significant future dollars that would be needed for staffing, training, and execution. I basically see these joint ventures as front-end expenditures for marketing and distribution that would cost more to build than buy.
Overall, the moves cement Tilray as a top-tier cannabis play. I do believe the company should and will raise capital with a valuation hovering around $6.5 billion. Given sale for next year will likely be somewhere around $65-75 million with the company posting a loss; much of the coming hyper growth in the cannabis sector is priced into the stock. While the recent developments are bullish for the long-term, I suspect the short-term squeeze and momentum will fade soon. I'd be most interested in buying this name after a cap raise which I expect in the first quarter of 2019. Until then, I still favor Canopy Growth and Cronos although I do believe selling far out-of-the-money puts on Tilray for January or February expiration is a viable strategy. That's the only one I would pursue currently on this name.
