Why Tilray Stock Tumbled Last Month

Tilray Brands (NASDAQ: TLRY) doesn't, to put it politely, have a history of pleasing its investors. That was well in evidence across June, as the company -- diversifying from its roots as a pure-play marijuana business -- fell into one of its more unattractive habits, announced a new acquisition, and saw an analyst cut his price target on the shares. The combination of these developments pushed Tilray's stock down by nearly 19% that month.

New shares for old notes

Over the course of its existence, the chronically loss-making Tilray has often issued new shares in order to bolster its finances. Sure enough, on two separate days in June -- one close to the start of the month, and one at the end -- the company divulged chunky stock flotations. It minted just over 1.2 million new shares in the first, and an additional 2.6 million-plus in the second.

Image source: Getty Images.

What makes the pair something of a departure for Tilray is that they weren't effected to raise capital. Instead, they were the equity side of a debt-for-equity swap the company effected with holders of some of its convertible notes (i.e., debt securities that convert to stock under certain conditions) that pay interest of 5.2%. As notes are booked as debt on the balance sheet, with this financial engineering move Tilray retired roughly $18 million in debt.

That'll improve the balance sheet to a degree (the company had $284 million in long-term borrowings at the end of February) which is, of course, a positive development. What's not so positive is the pile of new shares, as one reason investors have been wary of Tilray is its frequent new share issues. At least the June pair isn't excessively dilutive; the company's outstanding share count topped 123 million.

Later in the month an analyst following Tilray, Bernstein SocGen Group's Nadine Sarwat, cut her price target on the stock. She reduced it quite substantially, to $6.50 per share from $10. She also maintained her rather lukewarm stance on its future, keeping her market perform (hold, in other words) recommendation intact.

On the second-to-last day of the month, Tilray announced its latest acquisition. It is now the owner of HelloMD, a telehealth and patient engagement company focused on medical cannabis.

It didn't disclose the financial terms of the deal, but did say it boosts the company's "direct-to-patient capabilities, creates a fully vertically integrated medical cannabis framework for Tilray in Canada, and advances its global medical cannabis growth strategy."

More losses to come?

I think that combination of share price issuance and new asset acquisition is dismaying for some investors. I'd imagine they're wondering why Tilray is effectively reducing its stock's value while opening its wallet for an acquisition.

That wouldn't be such a concern if the company showed signs of reversing its loss-making ways, but I'm not seeing much indication of this yet. Personally, I don't think this stock is a compelling buy right now.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.