Canada markets close in 4 hours 48 minutes

Tilray CEO vows to keep spending after US$35.1M net loss in Q2

Canadian cannabis producer Tilray Inc.’s (TLRY) president and chief executive officer says focusing entirely on profitability is not the way to dominate a global industry worth hundreds of billions of dollars.

Speaking on a conference call with analysts after the Nanaimo, B.C.-based company, which keeps its books in U.S. dollars, posted a US$35.1 million net loss in its fiscal second quarter, Brendan Kennedy said now is not the time to pump the breaks on spending.

“You only see an opportunity like this once in your lifetime,” he said. “Globally, if now is not the time to invest I don't know when is.”

His comments come on the heels of mounting pressure on cannabis industry players to reign in expenditures in the wake of Bruce Linton’s ousting as CEO of Canopy Growth Corp. (WEED.TO)(CGC), a company he co-founded and scaled to the largest in the sector.

Mark Castaneda, Tilray’s chief financial officer, echoed Kennedy, stressing the importance of continued investment in the U.S. and foreign markets.

“If the world were to stop and there is no new countries to invest in, we do believe that we'd be positive EBITDA by the end of next year,” he said on the call. “I think as you look at the levels that we're at this quarter, we'll probably be something similar for next quarter, and then start to see some improvement in Q4, and then some improvements going forward.”

Tilray, which keeps its books in U.S. dollars, has not reported a profit in its first year as a public company.

Adjusted EBITDA was negative $17.9 million in the second quarter, compared to a loss of $4.7 million a year ago. Adjusting for one-time charges, the second-quarter loss was $31.2 million or $0.32 per share, nearly triple the losses in the same quarter last year.

Analysts polled by Bloomberg called for revenue of $40.35 million, an EBITDA loss of $14.4 million, and an earnings-per-share loss of $0.26.

NASDAQ-listed shares slipped over eight per cent in aftermarket trading. The stock closed 8.38 per cent higher at $46.02 in Tuesday’s session.

Tilray reported that revenue increased 371.1 per cent year-over-year to $45.9 million after the closing bell on Tuesday.

A worker smiles as she shows cannabis plants at the Tilray factory in Cantanhede, Portugal April 24, 2019. REUTERS/Rafael Marchante

Tilray said higher loss in the second quarter were due to rising operating costs related to growth initiatives, interest expense from its convertible notes, recent acquisitions and the expansion of its international operations.

In February, the company closed its C$419 million acquisition of Winnipeg-based Manitoba Harvest, the world’s largest hemp food maker. The company has also acquired Natura Naturals, a Canadian medical cannabis provider, and struck partnerships with brewing giant Anheuser Busch In-Bev (BUD), pharmaceutical company Novartis (NVS), and fashion firm Authentic Brands Group.

Tilray is currently expanding its medical footprint in Portugal, while also ramping up operations in B.C. and Ontario.

“We're building this thing to be one of the leaders in this space globally. We're not looking to just be the biggest company or one of the biggest in Canada,” Kennedy said. “Obviously, there's companies that are taking a much shorter view.”

Kennedy said Tilray will be ready to release beverages “later this year,” and expects to reveal a suite of five to six topical products with Authentic Brands Group in the coming months.

He predicted a supply balance in the next 12 to 18 months as the cannabis market finds an equilibrium. In May, Kennedy said it could take up to two years.

Tilray attributed the three-fold revenue increase in the period ended June 30 to the legalization of recreational cannabis in Canada, Manitoba Harvest, and growth in international medical markets.

Revenue from Canadian adult-use market nearly doubled to $15 million versus the prior quarter. Total kilogram equivalents sold more than tripled to 5,588 kilograms from 1,514 kilograms in the year-ago period.

The average net selling price per gram fell to $4.61, compared to $6.38 in same quarter last year. Excluding excise tax, the company's second-quarter average selling price per gram was $3.92. Tilray said the decline resulted from a reduced mix of pricier extracts and a greater mix of adult-use revenue, which is generated at lower prices per gram.