Tilray (NASDAQ:TLRY) stock, like other marijuana companies, rallied massively last week. The chances of marijuana being legalized in the U.S. increased a little last week after the House of Representatives’ Judiciary Committee approved a bill that would lift the federal government’s restrictions on the drug. Of course, if the bill becomes law, Tilray stock and its peers would get a tremendous boost.
However, the Canadian marijuana industry remains oversupplied and burdened with regulatory concerns. Moreover, U.S. legalization has to clear several more hurdles. Even more troubling, Tilray’s finances continue to deteriorate. Given these challenges, Tilray stock may not only struggle to remain a top-tier marijuana equity, but could also have trouble staying in business.
TLRY Has Alternatively Prospered and Suffered Like Other Marijuana Stocks
Tilray stock has experienced quite a ride since its 2018 IPO. Due in large part to a deal that allowed the company to export medical cannabis to the U.S., TLRY rallied quickly. During the height of the 2018 marijuana stock bubble, it soared as high as $300 per share.
However, when the bubble popped, it fell hard and every one of its subsequent rallies failed to last. A week ago, Tilray stock had dropped below $20 per share. The House Judiciary Committee’s vote helped to briefly take it north of $23 per share.
However, aside from this welcome news, the outlook of Tilray stock appears to be grim. Like its peers, the company has been hurt by an oversupply of dried cannabis and burdensome regulations that have caused many consumers to buy cannabis from the black market.
The company’s third-quarter earnings report highlighted these issues. Its Q3 revenues soared 411% year-over-year to $51 million. However, its net selling prices fell by 48%. Also, its 50 cent per share loss missed analysts’ average estimate by 20 cents per share.
TLRY Is Running Low on Cash
Moreover, the company faces deep financial problems. As of the end of Q3, TLRY had only about $100 million of cash. This leaves little breathing room, as the company lost $49.1 million in Q3.
Where the company will find the cash it needs to stay in business remains unclear. Analysts do not expect TLRY to be profitable until at least 2021. Also, the company already has built up about $430 million of debt. That’s a heavy burden, considering it only has around $420 million of equity.
Tilray stock price is now around $21.10. That may give it some latitude to issue more shares. However, the potential issuance of more shares gives investors another reason to sell Tilray stock. With a price-sales ratio of nearly 17, the stock looks poised to fall unless sentiment towards it rebounds.
Furthermore, as InvestorPlace contributor Thomas Niel mentioned, Privateer Holdings, a private equity firm, owns 77% of TLRY stock. For now, those shares cannot be sold. However, when that lockup expires, existing shareholders could face serious pain if the firm sells a large portion of its TLRY stock.
Niel questions Tilray’s ability to survive and frankly, so do I. Even if it does stay in business, it’s in worse shape than Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), and Cronos Group (NASDAQ:CRON).
The Bottom Line on Tilray Stock
Tilray stock appears to have risen due to euphoria about the potential legalization of cannabis. However, its financials indicate that it will not remain a top-tier marijuana stock and may struggle to survive. The days of stratospheric valuations are in the past for TLRY stock. TLRY now trades more than 90% below its all-time high.
However, its losses are mounting, while the company remains low on cash. The owners of Tilray stock will be hurt if the company raises funds by selling more shares. With a large number of cannabis stocks reeling, many marijuana companies with weak financials may not survive. Unfortunately, it increasingly looks like TLRY will not be among the survivors.
But even if Tilray does hang on, it looks poised to fade from the headlines as other large players become more dominant.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.