Is Tilray Brands Stock a Buy?

Tilray Brands (NASDAQ: TLRY) shares still aren't delivering on what investors may have hoped for, falling by 25% during the past 12 months. But, with a few catalysts in play, and with more operational improvements, anything is possible, and hope springs eternal.

So, is this stock worth investing in today, or is it better to save your capital for another opportunity?

The core focus is shifting

Tilray isn't the same company it was a couple of years ago, when its primary focus was on developing itself into a multinational vertically integrated cannabis operator. Since then, it's made a handful of major acquisitions in the alcohol industry in North America, and its collection of consumer brands is now also diversified into wellness products, some of which are derived from hemp.

In short, its marijuana segment could soon play second fiddle to booze. In its fiscal first quarter of this year, ended Aug. 31, 28% of its total revenue, or $55.9 million, was from alcohol sales, whereas 31%, or $61.2 million, was from cannabis. A year ago, 13% of its sales were from alcohol, and 40% from cannabis. Its other two segments, distribution services and wellness products, haven't changed nearly as much.

Plus, as a consequence of slower and more limited than anticipated marijuana legalization policies in the U.S. and its international markets, particularly in the European Union, the company still derives the overwhelming majority of its cannabis revenue from the adult-use market in Canada, and its international sales actually dropped slightly year over year in the first quarter. Canada is Tilray's home market, but it's also a saturated market where it does not necessarily have any competitive advantage to protect its market share. And that's part of the reason its trailing-12-month operating losses were $108.3 million.

This state of affairs has eroded the main investment thesis for buying the stock during the past few years. The idea was that via a combination of growth from its expansion into international cannabis markets and reliable income from alcohol sales, it would be able to get established as a highly efficient and mass-scale consumer goods business, complete with low-cost production facilities in major markets and widely known brands that would generate customer loyalty.

The plan appears to be stalled; its trailing-12-month revenue rose only by 38% during the past three years, reaching about $812 million. And while its operating margin has improved significantly, it's still losing cash every year, with an outflow of $60.1 million in its fiscal 2024.

It's hard to see shareholders getting a good deal right now

Given the loss of momentum, there isn't as much reason to invest in Tilray as there was before.

Major anticipated catalysts, specifically marijuana legalization in the U.S., are no longer as certain as they once seemed amid political shifts, though management remains bullish on legalization generally. While other players have decided to enter the U.S. state markets for marijuana in a piecemeal fashion, Tilray hasn't yet done so, meaning it will face established incumbents if it decides to change course. And its alcohol segment, while growing, is not itself in a high-growth or high-margin industry. To the contrary, especially in North America where Tilray competes, there are a plethora of other competitors in beer, wine, and spirits.

There isn't any flashing red light suggesting that Tilray is about to go down in flames. Its debt payments will likely continue to be manageable, and it can probably continue to add to its revenue each year, at least for a while. In fact, if it can make its new alcohol acquisitions into a cash generator during the next couple of years, the original plan could still work out in the end, just slower than initially envisioned.

But the prospect of this business producing earnings rather than losses is likely still years away at best. In the meantime, it will periodically issue new shares to fund its expansion and its operations, diluting shareholders in the process. At the moment, there's not a compelling case for buying this stock.

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