A Benchmark analyst downgraded his rating of Tilray to Sell from Hold.
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Tilray Brands shares were trading lower Friday after an analyst from Benchmark cited concerns on the cannabis company’s ability to grow market share.
Tilray (ticker: TLRY) reported its fiscal fourth-quarter earnings results on Thursday. The cannabis company posted a quarterly loss of 90 cents per share, which was wider than analyst estimates of a loss of 8 cents a share, according to FactSet. However, sales for the quarter of $169.2 million came in above Wall Street estimates of $151.3 million.
“In completing our testing this year, we dealt with a number of factors including the impact of expected inflation on our cost models, increased interest rates, particularly the risk-free interest rates, the strength of the U.S. dollar against our operating currencies and the general recessionary like atmosphere, including current market conditions for all publicly traded companies,” Chief Financial Officer Carl Meron said in the company’s earnings call on Thursday.
Shares for Tilray climbed 12% Thursday, but after Benchmark analyst Mike Hickey lowered his rating of the company to Sell from Hold, the stock fell 4.5% Friday to $3.49. The stock has fallen 49% in 2022.
“We are not convinced ‘corporate cannabis’ can create compelling products or brands in Canada,” Hickey wrote in a research note Friday. “We estimate TLRY is also losing market share in pre-rolls and vapes, a category it was highlighting strength in the prior quarter.”
Hickey, who has a $3 price target for the stock, added that Tilray’s market share declined to 8.3% from 10.2% in the third quarter and 12.8% in the second quarter.
Hickey said that he thinks the cannabis market in Canada will “continue to struggle from oversupply and pricing compression.”
He isn’t convinced Tilray can grow premium cannabis at scale in Canada and expects that “its resource allocation to premium cannabis cultivation will either fail outright and/or oversupply the market causing pricing pressure in the connoisseur flower segment.”
As for the United States, Hickey said legislation is still “years away” and he doesn’t expect any regulatory relief will be passed in 2022.
Write to Angela Palumbo at angela.palumbo@dowjones.com
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