Tilray reports US$105-million loss, cuts earnings forecast

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Tilray Brands Inc. TLRY-T cut its projected earnings for the fiscal year and reported revenues that fell short of analyst estimates, triggering a sharp sell-off of the cannabis producer’s shares along with those of other players in the sector.

Tilray reported a loss of US$105-million for its third fiscal quarter ended Feb. 29, compared with a loss of US$1.2-billion a year earlier, when it recorded a large one-time impairment charge.

The company also cut its forecast for earnings before interest, tax, depreciation and amortization (EBITDA) for the 2024 fiscal year ending May 31 to between US$60-million and US$63-million, down from between US$68-million and US$78-million. Tilray also said it no longer expects to report positive adjusted free cash flow for the year.

The results are the latest sign that the cannabis sector continues to struggle amid industry oversupply, fierce competition, and weak pricing and profit margins, causing recent insolvencies among small cannabis growers unable to produce enough cash to cover their costs.

Since the beginning of 2024, four small and mid-sized producers have filed for creditor protection under the Companies’ Creditors Arrangement Act, with combined liabilities of more than $150-million, and one posted a notice of intention to file under the Bankruptcy and Insolvency Act. This is on top of at least 18 companies that filed under CCAA and the Bankruptcy Act last year.

The companies that filed for creditor protection in the past few months have said they are suffering significant losses from high interest rates on debt and, in some instances, a high tax burden.

Tilray’s net revenue in the quarter was up 30 per cent to $188.3-million, helped by acquisitions but short of analyst expectations. The company has the largest share of the recreational market in Canada, with just over a third of its revenue coming from the sale of cannabis, while it also has acquired various U.S. craft-beer brands.

Shares of Tilray plunged more than 20 per cent on the Toronto Stock Exchange on Tuesday, while shares of rival cannabis producer Canopy Growth Corp. WEED-T dropped nearly 10 per cent and those of Aurora Cannabis Inc. ACB-T declined by nearly 9 per cent.

“Licenced producer fundamentals, on average, remain challenging, with cash burn an issue for most companies, as well as deflationary pressure in the Canadian market,” Pablo Zuanic, managing partner of cannabis equity research firm Zuanic & Associates, said in an e-mail.

“In our view, the natural attrition and potential M&A activity will benefit the stronger companies – those with sustainable scale and strong balance sheets,” he said.

Heritage Cannabis Holdings CANN-CN, which was granted creditor protection on April 2 with $35-million in liabilities, owes $11.7-million in unremitted excise tax arrears, according to court filings.

The company’s application for creditor protection states it is facing a “liquidity crisis” and would not be able to meet its obligations if it continues with business as usual. BJK Holdings, the company’s senior secured lender, said it is no longer willing to continue supporting the company and demanded payment of its debt on April 1.

Before Tilray’s results, stock prices for larger Canadian producers had been in an uptrend in recent months after regulatory and international market news.

A legislative review of the Cannabis Act, published in late March, suggested the government is evaluating the way it calculates the excise tax rate, which would reduce the amount that large companies pay on cannabis sales.

Meanwhile, valuations had been boosted by developments in the German legalization process, and optimism that the U.S. federal government could soon ease restrictions.

While Canadian companies can’t currently sell recreational cannabis outside the country, many have acquired or partnered with German and American firms in order to ease the entry into those markets in the future.