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Tilray reports lower pot prices, tighter margins

Tilray (TLRY) reported solid revenue but a decline in average selling prices in the third quarter as the Canadian cannabis producer works to address a growing medical and adult-use market.

Although Tilray more than doubled the amount of cannabis sold in the third quarter of 2018 over last year, average selling prices fell by $1.32 per gram, putting pressure on margins. Gross margins were about 30% in the third-quarter versus 55% in the same period last year.

Tilray sold 1,613 kilograms – or about 3,556 pounds – of cannabis in the third quarter, from 684 kilograms in the same period of last year. Average net selling price per gram fell to $6.21 from $7.53, “primarily due to an increase in bulk sales as a percentage of total revenue,” the company said in a statement.

Increased patient demand, bulk sales and wholesale distribution in Tilray’s export markets drove revenue to $10.04 million in the quarter, an 86% increase over last year. Losses, excluding some items, were 8 cents per share, narrower than consensus expectations of an adjusted 11-cent loss per share, according to Bloomberg data.

Tilray’s net loss, which includes stock-based compensation charges and higher operating costs, rose to $18.7 million, or 20 cents per share, compared with $1.8 million a year ago.

“We are in the early stages of achieving our growth potential and our team continues to strategically execute on disciplined operational initiatives and investments to support Tilray’s long-term, sustainable growth as the pace of legalization continues to accelerate around the world,” Brendan Kennedy, CEO of Tilray, said in prepared remarks. “Going forward, the demand for our products is strong and we remain committed to expanding our leadership in the global medical and adult-use cannabis markets.”

Tilray’s stock extended losses Wednesday morning, falling 4.8% to $106.20 per share as of 9:49 a.m. ET.

Cannabis sativa spilling out of an amber prescription vial.

Tilray has faced intense scrutiny from investors since going public in July as the company has fought to justify its ballooning valuation. The wildly fluctuating stock climbed to $300 per share – a more than 1600% increase from its $17 per share price at its IPO – during intraday trading mid-September but has since pared those steep gains. The stock fell 1.67% to $111.55 per share Tuesday, with a market capitalization north of $10 billion.

Tilray’s stock has been particularly capricious in the wake of an evolving global regulatory landscape for cannabis. Shares jumped 30% on Nov. 7 after marijuana legalization critic Jeff Sessions resigned as Attorney General and voters made Michigan the 10th U.S. state to permit adult use of cannabis. Marijuana is still classified as a schedule 1 drug federally, the same level as LSD and heroin.

In the three months ending Sept. 30, the Nanaimo, British Columbia-based company has taken steps to capitalize on what Kennedy has previously called the “massive opportunity” of the cannabis industry, which Kennedy believes will eventually be a $200 billion global marketplace. Tilray signed an agreement with Prince Edward Island to supply adult use cannabis for consumers in the company’s eighth deal in the Canadian provinces and territories. It also received regulatory permits in Canada and Germany allowing for exports of medical cannabis flower to German patients. Tilray’s medical cannabis products are now available to patients in 12 countries on five continents.

“The medical market remains TLRY’s core strength, and is well positioned to capitalize on the global medical cannabis opportunity,” Vivien Azer, an analyst with Cowen, wrote in a note ahead of results. “We think TLRY is fully engaged in a cannabis IP arms war and additional insight into progress in this vector may have an outsized impact for investors and potential partners.”

Peer pot company Aurora Cannabis (ACB) reported first-quarter 2019 results earlier this week, with revenue increasing 260% over last year and kilograms of cannabis sold rising to 2,676 kilograms. Cronos Group (CRON) reported third-quarter revenue that nearly tripled from the year-ago period, though its stock took a beating as it posted lower average selling prices and margins. Canopy Growth Corporation (CGC) will report its latest quarterly results Wednesday.

Updates with Wednesday’s opening share prices. 

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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