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Tilray, Inc.’s third-quarter 2019 revenue rose to US$48.2-million ($64.1-million), up 15 per cent from the prior three-month period but slightly below expectations as its average net selling price of cannabis dropped by 30 per cent.

The Nanaimo, British Columbia- based licensed producer (LP) reported a net loss of US$35.7-million, or 36 cents per share for the quarter, compared with a loss of US$35.1-million in the second quarter. This was primarily due to the increase in operating expenses related to growth initiatives, expansion of international teams and the addition of Manitoba Harvest and Natura businesses, the company said.

Cannabis prices fall as sales volumes nearly double

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Tilray’s average net selling price dropped to US$3.25 ($4.32) per gram, down 30 per cent from the prior quarter at US$4.61 ($6.12). Excluding excises for adult-use, the average selling price was US$2.98 ($3.96) per gram, down 24 per cent from US$3.92 ($5.20) per gram in the second quarter.

Gross margins increased to 31 per cent from 27 per cent in the prior quarter, while adult-use cannabis sales rose to US$15.8 million versus US$15 million in the second quarter, even as sales volumes rose significantly to 10,848 kilograms, nearly double the 5,588 kg equivalents sold in the second quarter.

International medical cannabis sales reached US$5.7 million in the third quarter, versus US$1.9 million in the second quarter.

“The challenges in the Canadian market are ongoing with the limited retail locations. We expect the United States and Europe to be two of the largest cannabis markets long term,” said Tilray’s chief executive Brendan Kennedy on a conference call with analysts.

International medical cannabis expectations

“We expect a significant ramp in international revenue on top of the very strong growth we’ve already seen,”Mr. Kennedy said, adding he expects the company’s facility in Portugal will receive its next necessary European GMP certification within months.

“We expect to significantly ramp up our exports from our Portugal campus soon.”

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Tilray has already exported medical cannabis to 16 countries, with six of those in the European Union, he said.

“We’re encouraged by the number of patients that are getting prescriptions in Germany. We expect to not only significantly increase revenue through bulk exports to Germany and other EU countries, but with the next GMP certification, we’ll be able to ship finished package product. That will increase overall revenue … and then secondly it will increase our profit margin,” Mr. Kennedy said.

International medical cannabis sales hold the highest margins.

“We expect the United States and Europe to be two of the largest cannabis markets long term,” Mr. Kennedy said.

New Canadian products will bring higher margins

“We expect adult-use revenue to continue to drive our growth,” said Mark Castaneda, chief financial officer for Tilray, speaking to analysts on the conference call.

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“We do expect price-per-gram going up because the international mix has higher margins as well as [new Canadian] 2.0 products.”

Tilray expects Canada to have around 1,000 licensed retail stores by the end of 2020 and as a result, expects to have positive EBITDA (earnings before interest, tax, depreciation and amortization) by the fourth quarter of 2020, Mr. Castaneda said.

Another positive is the upcoming launch of Cannabis 2.0 products, which are concentrated items such as vaporizers, edibles and beverages, which will have higher margins than dried flower.

Canadian supply balance improves but still lacks strong pot

“We’re getting close to a supply-demand balance for low potency product but for high-potency products, the products people want, is still in low supply,” Mr. Castaneda said.

Legal Canadian cannabis supplies will likely reach a balance within 12 months, he said.

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Growth seen in older Canadian demographics

“We’ve seen increased interest in older demographics around CBD,” said Mr. Kennedy.

Tilray will introduce new form factors for that demographic in Canada, while the beverage brands and products the company plans to launch in December will target the consumer segments that have been identified in research.

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