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  1. Tilray reports net loss at US$35.1 million in Q2, revenue jumps to US$45.9 million
  2. Canadian pot supplies expected to be balanced in 12 to 18 months
  3. Tilray aims for 30 per cent gross margins by end-2019 to early 2020

Tilray, Inc. posted a bigger-than-expected loss at US$35.1 million in second-quarter 2019, as revenue surged to US$45.9 million due to higher recreational cannabis sales in Canada, hemp-product sales from recently-purchased Manitoba Harvest and growing international medical markets.

The company’s revenue doubled that of the first quarter, which was US$23 million.

Revenue from adult-use cannabis in Canada reached US$15 million in the three-month period ended June 30, said the Nanaimo, B.C.-based company that trades on Nasdaq in the United States.

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While its net loss for the quarter reached US$35.1 million, or 36 cents per share, its adjusted net loss for charges related to a non-recurring acquisition and purchase accounting for “the fair value of inventory,” was US$31.2 million, or 32 cents per share, the company said.

Tilray sold 5,588 kilograms of cannabis in the second quarter, with the average net selling price at US$4.61 (C$6.12). This was down from US$6.38 (C$8.36) in the year-ago period, it said.

Here are some takeaways from Tilray’s conference call with analysts discussing the second-quarter financial report.


Brendan Kennedy, Tilray president and chief executive, said he expects legal cannabis supplies in Canada to become balanced in the next 12 to 18 months.

“There’s still a severe distribution constraint in Canada. Some of the provinces have more retail locations open than others. Alberta, for example, continues to open stores at a fairly fast clip, but Ontario and Quebec certainly don’t have as many stores open as one would expect,” Mr. Kennedy said.

“I think that’s one big constraint in Canada. It’s restricting the growth of retail revenue. The other thing it’s doing is continuing to fuel the illicit market in Canada.”

Still, the legal market is expected to grow versus the illegal one, he said.

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“The last time we did this call, I was really frustrated with the quality (of) supply,” Mr. Kennedy said, adding this has improved in the last six weeks.

“I certainly am more optimistic today that quality supply will continue to come online in Canada.”

Pricing pressure, however, is expected as adult-use cannabis products increasingly become a larger share of licensed producers’ offerings in the second half of 2019, though the new derivative products that are expected to be sold in early 2020 will lift prices higher, said Mark Castaneda, chief financial officer for Tilray.

Mr. Castaneda said recreational dried flower orders are expected to be muted over the coming quarters as wholesalers shift their purchases to include the new products that are set to be legalized in late-2019, such as edibles and vaporizers.

“Revenue for the back half (of 2019), you’ll see growth. You’ll see a much more muted growth into the retail channel for adult use,” Mr. Castaneda said.


Cannabis derivative products such as edibles will likely be shipped to wholesalers in the first quarter of 2020 rather than the fourth quarter of 2019, due to regulations, though late-December is possible.

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“What is really unknown … is whether or not the Crown corporations are going to be able to place significant orders at the end of year … or whether some of them might just hit pause and place those orders in January,” said Mr. Kennedy, adding that he has stopped trying to predict how “these entities will act.”

Tilray has been stockpiling cannabis oil for vaporizers this quarter and will continue to build on that inventory in preparation for legalization at the end of 2019.

“We expect to distribute a number of vape products under multiple brands and segment the vape products into three broad categories by form factor. We expect to have a full line of products available that are disposable vapes,” said Mr. Kennedy.


“We expect the United States and Europe to become the biggest markets. Our products in the United States will not contain any THC until it is federally legal,” Mr. Kennedy said.

“We will continue to pursue strategic mergers and acquisitions … that increase offerings, provide access to strategic distribution channels.”

Tilray continues to “invest heavily” in Portugal, where it owns cultivation facilities, and plans to do so in the “coming years.” The company it is building inventory there as it awaits more good manufacturing practices (GMP) certifications and pegs its second-quarter cannabis inventory in Portugal around US$4 million. Medical cannabis products fetch higher prices in Europe versus Canada.

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Any ramp up on CBD products in the United States will depend on clarity provided by the U.S. Food and Drug Administration (FDA), after hemp-derived CBD was legalized there with the passing of the 2018 Farm Bill.

If that clarity comes, Tilray expects to ramp up hemp-derived CBD offerings in the United States significantly in the last half of 2019.

“There’s uncertainty around what the FDA’s going to do around CBD isolate. We were much more comfortable with the broad spectrum hemp extract language,” Mr. Kennedy said.


While Tilray’s gross margin increased to 27 per cent in the second quarter from 23 per cent, it was down sharply from 43 per cent in the second quarter of 2018, prior to the legalization of recreational cannabis. This was due to increased costs from ramping up growing facilities in Canada and Portugal, as well as buying supplies from third parties.

Gross margins expectations for the second half of 2019 or early 2020 were expected to rise by another 300 basis points to 30 per cent.

“You’ll see us starting in the mid-30s and getting into the mid-40s later in the year (2020), and potentially even higher,” gross margin in 2020,” said Mr. Castaneda.

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