Tilray reports a net profit in its second quarter fiscal 2022
At one point in time, Canada’s marijuana industry was characterized by companies primarily focused on increasing their market share. As smaller companies merged with larger ones, the focus shifted to realizing synergies and boosting the bottom line.
While 2021 was a busy year for mergers, with Canopy Growth purchasing Supreme Cannabis and HEXO purchasing Redecan, the highlight of the year was arguably the merger between Tilray and Aphria, which created the world’s largest marijuana company by revenue at the time.
Aphria shareholders received 0.8381 Tilray shares per share of Aphria. The deal was anticipated to generate $81 million (U.S.) of pre-tax cost-saving synergies within 18 months of closing. Fast forward to Jan. 10, Tilray released its second quarter fiscal 2022 results with cost synergies of $70 million to date, and another $20 million to come.
Total revenues increased to $155 million from $129 million, while net income surged to $6 million from an $89-million loss in 2020, driven by a $138-million increase in nonoperating income.
Matt Bottomley, an equity analyst at Canaccord Genuity who researches the marijuana industry, attributes some investor optimism to Tilray’s ability to deliver on the merger.
“Where I think Tilray did a good job in this quarter is delivering on what they promised with the synergies related to Aphria. It shows they are able to be nimble with what is a choppy sector overall,” Bottomley said.
While marijuana companies have been on a partnership and acquisition frenzy, Bottomley hesitates to call it a future trend. “We don’t really know where (acquisitions and partnerships) will go from a Canadian perspective until we know what the rules are in the U.S. as it continues to liberalize,” he said.
Sundial revises its purchase offer for Alcanna
A counterpart to the LCBO, Alcanna is a Western Canada alcohol retailer based in Edmonton, Alta. It is also a majority shareholder of Nova Cannabis, a marijuana retailer with stores across Alberta, Saskatchewan and Ontario.
In an Oct. 7 news release, Sundial Growers, a Calgary-based marijuana producer and marketer, announced it will acquire Alcanna for total consideration of roughly $346 million. Alcanna shareholders will receive 10.69 common shares of Sundial per share of Alcanna.
This offer was revised on Jan. 6 to include cash and shares. Alcanna shareholders will now receive $1.50 in cash and 8.85 shares of Sundial per share of Alcanna. Shareholders approved the arrangement the following day.
Bottomley notes there are two major trends in the marijuana industry: a shift in consumer preferences and a shift in investor expectations.
“From a consumer perspective, their tastes are not significantly changing year over year, but the one thing up for debate is beverages. I think there is a place for it in the sector, but the logistics are harder,” he said, adding that government restrictions on marijuana content limit the amount people can buy, and having the beverages safeguarded in dispensaries make them less convenient to buy.
As for the shift in investor expectations, Bottomley said, “the EBITDA line and free cash flow from operations line are probably what is most looked at now when it comes to licensed producers. We have already seen with Tilray that their market share has gone down, but that is not necessarily bad, as they are protecting their profitability profile by giving up market share of less profitable items.”
Tilray’s bottom line got a nice boost in its second quarter fiscal 2022, driven by a $138-million (U.S.) increase in nonoperating income compared to the prior year. In the absence of this line item, Tilray would have taken a $65-million pre-tax loss, an improvement over last year’s $103 million. In its third quarter fiscal 2021 results, Sundial reported revenues of $14.4 million (Canadian), up from $12.9 million the prior year, with net income of $11 million, versus a $71-million loss in 2020. Adjusting for nonoperating income, the company reported a pre-tax loss of $24 million, down from a $71-million pre-tax loss the prior year. While bigger is not always better, cost synergies are one way to boost the bottom line and please shareholders. The thumbs up goes to Tilray.
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