It seems cannabis stocks are finding a bottom after the recent market selloff and Tilray (NASDAQ:TLRY) has not been left behind. Although the stock has rallied in the last two months almost tripling from its March lows it is still 53% down since the beginning of the year.
Tilray Posted Strong Q1 Results
The stock still has some signs of life despite the impact of the coronavirus pandemic in the industry. in the near term things look gloomy but in the long term things are promising. Last week the company reported strong Q1 earnings with YoY revenue almost doubling and it grew 11% on a sequential-quarter basis.
The company’s top line topped analysts’ estimates and the company was able to post sequential quarter growth despite a decline in bulk sales attributed to the impact of the coronavirus pandemic. Unfortunately Tilray’s adjusted EBITDA was negative and the company reported a loss of $19.7 million in the quarter but expects positive EBITDA by the end of the year.
Tilray’s results interestingly look similar to those of Aurora Cannabis (NYSE:ACB)that also reported better than expected earnings results recently. Although there are similarities in terms of results posted for Aurora its stock almost doubled on the earnings while Tilray stock dropped 7.6% on the release.
TILRAY FACES CASH BURN ISSUES
There are however some concerns with Tilray because of negative trends in numbers in the long term. The company’s gross margins have dropped from 55.4% in 2017 to around 21% in Q1 2020. Its operating cash flow is also declining and had dipped to 258 million in 2018. This year the company expects a cash burn of between $35 million and $45 million with free cash flow burn likely to hit $100 million.
The company is burning a significant amount of cash and it is not profitable yet. As a result it has been forced to cut costs because its balance sheet cannot sustain more investments and cash burn.