Tuesday is turning into a lousy day to own marijuana stocks, as bad news from cannabis company Tilray Brands(NASDAQ: TLRY) is taking a toll on pretty much every other marijuana stock out there. Tilray reported a miss on sales this morning and a $0.12 per-share net loss.
Shares of Cronos Group(NASDAQ: CRON), Canopy Growth(NASDAQ: CGC), and Aurora Cannabis(NASDAQ: ACB) are all suffering as a result, down 3.5%, 7.8%, and 8.5%, respectively, as of 12 p.m. ET.
Tilray's pain is everyone's pain
How bad was Tilray's news, and was it bad enough to justify the reaction to other marijuana stocks? It depends on how you look at it.
On the one hand, Tilray put up some pretty decent growth numbers -- 30% total sales growth, 33% growth in marijuana sales, in particular, and 165% growth in alcohol sales. On the other hand, marijuana investors would probably rather have seen Tilray do a bit better on the marijuana front.
It's also worth pointing out that even much of Tilray's marijuana sales growth came not organically but from the company's acquisition of Hexo. Thus, growth in Tilray's marijuana business doesn't necessarily imply that the marijuana industry, as a whole, is growing. And the contrary may be more accurate.
Despite being the self-proclaimed "#1 Canadian cannabis LP, the European market leader in medical cannabis," and despite cutting costs and "realizing operating synergies in integrating our HEXO acquisition," Tilray was forced today to admit that it's no longer on track to generate positive free cash flow (FCF) this year. It turns out that the analysts forecasting that Tilray would burn cash in 2024 despite its assertions to the contrary were, in fact, correct.
Just as it's burned cash in every year it's been in business, Tilray will burn cash again in 2024.
Should you buy or sell marijuana stocks?
What does this mean for Tilray's competitors? Consider that the company is one of the biggest marijuana stocks on the market today, with roughly twice the market cap of Canopy or Cronos and several times the size of Aurora Cannabis. Only a couple of OTC-listed cannabis stocks are bigger. If Tilray can't earn a profit in this business despite gobbling up competitors and cutting costs, what hope do smaller companies like Aurora Cannabis, Canopy Growth, and Cronos have?
The answer may be not much. As it turns out, analysts polled by S&P Global Market Intelligence predict Aurora Cannabis won't turn FCF-positive before 2026. Canopy Growth will do so only in 2027, and Cronos may literally never generate positive cash profits for its investors.
The sad truth is that Tilray may be the best of this bunch. But if even Tilray is suffering, it's probably best to avoid the rest.
Should you invest $1,000 in Tilray Brands right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
