TLRY Bulls are banking on a grand strategy
The bull thesis for Tilray rests on the eventual success and long-term benefits of the company's ambitious grand strategy.
Per that strategy, Tilray will spare no expense in scaling up its operations and grabbing market share in North America and the E.U., such that it can realize global economies of scale in production once cannabis is fully legalized in those regions. In particular, entering the U.S. market will be a major watershed moment, because it would likely lead to at least a few years of rapid top-line growth.
Once that part of the plan is in action, it should subsequently cement its market share while also bolstering its margin by building brand loyalty, slowly developing a competitive advantage other players can't easily mimic. Then, it'll be a free cash flow (FCF) machine that'll have plenty of money to return to shareholders while also investing in further growth. And it'd probably (still) be the world's largest marijuana business at that point, too.
Implementing the grand strategy could take between five and 10 years once the legal barriers fall. But the company already has quite a few of the pieces of the plan staged and ready for when the laws allow. It has cultivation and manufacturing facilities set up in Portugal to avoid tariffs for importing cannabis into the E.U., as well as medicinal cannabis subsidiaries set up in most major European markets like Germany and France.
Likewise, it has a strategic agreement that'll enable it to enter the U.S. market quickly upon legalization, and its alcohol businesses are building distribution networks that could come in handy for cannabis too.
So at the crux, the bulls are anticipating that soon enough Tilray's next leg of rapid expansion will occur. And with its latest purchase of beer brands from Anheuser-Busch, which could generate $250 million in craft beer sales annually, that leg of growth could be imminent regardless of what's going on with its cannabis operations.
The skeptics might not ultimately be correct
It's hard to dispute the issues described by the bears. Tilray simply can't work around cannabis being illegal in its target markets, and waiting for that to change could continue to be agonizing for shareholders.
At the same time, there is nothing fundamentally wrong with the business, as the bears see it. Profitability could come with time, even without widespread legalization. And there's no rule that says competing in medicinal marijuana markets while waiting for recreational marijuana to be legalized is inherently unprofitable or low-growth.
Long term, the bulls are more likely to be proven correct. But the stock could be a volatile pick in the interim, and it is doubtlessly a high-risk investment. If you're comfortable holding your shares for a long time and seeing them potentially fall -- perhaps by quite a bit -- buy away. Otherwise, look elsewhere; there's a ton of uncertainty in the cannabis industry, and it won't be clearing up for a while.