Tilray earnings preview

With the US Congress passing a law to loosen restrictions on cannabis, one of the most liquid CBD firms might finally turn a profit.

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The big money is in the US

Tilray hasn't been immune to the issues plaguing the Canadian cannabis market: Oversaturation and pricing pressures.

Looking forward, the opportunity in CBD stocks was always a ‘growth’ investment - meaning Canada’s home market is not enough - the big fish for these firms is the US. The slow move towards legalization in the US should give already established companies an edge in expanding in a market that is nearly ten times the size.

Being able to move into a new market requires substantial capital, and Tilray was able to amass well over $300M despite the pandemic.

Last Thursday, the US Senate passed a reform bill that would expand research into CBD but is far from full legalization. Although it could provide some minor opportunities for Tilray, a real boost would depend on the bill that was simultaneously passed by the House. It's the second time that the lower chamber tried to legalize marijuana in this session, but most political analysts expect it won't pass the Senate.

Looking out to November, Cannabis companies could be some of the most heavily-affected by the result of mid-term elections.


What now?

In the meantime, the focus for the stock is on more fundamentals. Tilray is set to report for its fiscal third quarter, which ended in February. That means it was likely impacted by the omicron surge, on top of the usual seasonal effects. Even so, the consensus among analysts is that it will report an EPS of -$0.08 compared to -$0.19 last year.

Only about a third of Tilray's revenue comes from medical marijuana sales in Canada. The bulk of the remainder comes from international wholesales to the US and Europe. While there might have been a short-term impact in the market last quarter, analysts are confident that there are firm prospects for growth in the latter part of the year, even if the US doesn't move to substantially relax rules around CBD use.

TLRY unveils gap

TLRY is 90% below its all-time high and in a bear market. On March 24, Tilray bulls recaptured the 50-day moving average. Currently, prices fluctuate between $7 and $9.

The gap at $6.98 will likely be filled. A break of the support could take the stock to the 61.8% Fibonacci retracement of the upside $4.70-$9 leg at $6.40. A break there could send prices back below the 50-day average, and towards $5.

The bullish case will strengthen if the market remains above the swing low of $7.10. A daily close above the 38.2% Fibonacci retracement of $7.44 would add to bullish sentiment. Above the $9.12 high, the 200-day average can be observed at around $10.30.

Source: Spreadex trading platform

Key Takeaways

Tilray quarterly earnings were likely impacted by the Canadian cannabis market but prospects are strong for global growth despite the recent omicron surge.

Buoyed by the US Senate's passage of reform legislation, experts predict Tilray's success will depend on future legalisation in the US.