This year promises to be disappointing once again for Tilray Brands (NASDAQ:TLRY) investors. The company continues to suffer losses and no significant changes are expected in the Canadian marijuana market next year that could improve its profitability outlook.
But 2024 may not be so bleak for Tilray stock. Here’s how I see next year panning out for this beaten-down pot stock.
1. Tilray Brands Stock Will Generate Positive Returns in 2024
Stockpots have not been big investments in recent years. Between inflation and too much competition, particularly in the Canadian cannabis market, the result was a brutal landscape with low margins that made it difficult for businesses to thrive.
I don’t expect the level of competitiveness to decrease. But I expect there to be more enthusiasm towards the second half of 2024 – an election year in the United States – and that means it would be an opportune time for marijuana legalization to reappear in the debate. This is a potential election issue, so I think this might be an opportune time for politicians to talk about it again. And when that happens, it could spark excitement around marijuana stocks. At the very least, it could help shine a spotlight on Tilray and other struggling pot stocks, which could persuade investors to take a chance.
Tilray stock is down more than 30% this year after already seeing its valuation collapse 62% last year. And it was down 15% the year before. The last time Tilray stock was in positive territory was – you guessed it – the 2020 election year, when it rose 33%.
2. It will pursue more acquisitions outside the cannabis industry
Tilray is active in the cannabis sector, but it has diversified outside of this sector. This helped improve his finances. This is a trend I’ve observed among other Canadian cannabis companies: the more they diversify outside of the industry, the better their results. This goes back to the problem of intense competition and margin compression. By focusing on other industries, these companies can improve their bottom line while increasing sales.
Earlier this year, Tilray purchased eight beverage brands from Anheuser-Busch InBev. Through this deal, Tilray was able to become one of the top five craft brewers in the United States.
Whether it focuses on beverages or other adjacent businesses, I expect Tilray to still be active in M&A next year; it still needs to find ways to increase its turnover. Last quarter, for the period ended August 31, Tilray’s revenue totaled $176.9 million, up 15% year over year. The company’s cannabis and distribution businesses each accounted for 39% of total revenue, followed by beverages and alcohol at 14% and wellness at 8%. And with a gross margin of 53%, the beverage sector is far more lucrative than any other segment: no other business unit generates margins of even 30%. Tilray’s cannabis operations boast gross margins of just 28%.
Diversifying outside of cannabis can be a great way for Tilray to become a more investment-friendly company.
3. It will post at least a quarterly profit
Over the past few years, Tilray’s bottom line has fluctuated, largely due to writedowns and changes in asset valuations. But the company has shown progress lately, and I expect that as its operations shift more toward beverages, it will get closer to breaking even.
Tilray has posted profitable quarters in the past, and I expect it to return to the black at least once next year.
Does all this make Tilray a good stock to buy?
If you are considering investing in Tilray stock, you should have a high risk tolerance. The stock’s wild swings and uncertainty in the cannabis industry make it an unsuitable investment for most investors; it’s not a stock I would buy, given its unpredictability. While I expect it to do well in 2024, that doesn’t mean I think it’s a safe stock or that it won’t continue to struggle in the years to come. future.
Unless you’re willing to take a big risk with the company, it might be best to take a wait-and-see approach with the stock. This will give you time to assess that it is indeed focusing more on expanding into other sectors and that its finances continue to improve.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
3 Predictions for Tilray Brands Stock in 2024 was originally published by The Motley Fool
