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Tilray Inc (NASDAQ:TLRY) Exploits Paradigm-Shift in Cannabis Investing

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Tilray Inc (NASDAQ:TLRY) is making history as one of the first cannabis producers and processors to go public on a major U.S. exchange. The IPO launched today – a cannabis “plant touching” pure play – and TLRY is doing better than predicted. Most analysts saw it starting out between $14-$18 range and the stock has traded above $20. This move and the excitement behind opening day reflect the change in investor’s thinking on the once gray area that was cannabis.

With a research facility in Nanaimo, B.C., and cultivation and processing sites in Ontario and Portugal, Tilray supplies “tens of thousands of patients in 10 countries,” according to its prospectus. It also has exclusive Canadian rights to a list of recreational brands of cannabis products, including Privateer-owned Marley Natural and The Goodship. In addition, mirroring the changing times, big banks are backing TLRY. In the U.S., the shares will be offered by a syndicate comprising Cowen, Roth Capital Partners and Northland Capital Markets. In Canada, shares will be offered by BMO Nesbitt Burns and Eight Capital. The Canadian company raised $153 million total for this IPO.

 Tilray Inc (NASDAQ:TLRY), in the first quarter, reported a net loss of $5.2 million on sales of $7.8 million, compared with losses of $679,000 and revenue of $5 million in the year-earlier period. Overall in 2017, TLRY banked sales of $20.5 million and a net loss of $7.8 million.

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“I think the IPO signifies a shift in perception.” said Chief Executive Brendan Kennedy in a media interview. “This is just the beginning, we take a very long term global view and we wanted to get this milestone as a validation for not only us but the entire sector.”

The company makes its money by selling directly to consumers its via e-commerce platforms or through pharma distributors across Canada. Plus, TLRY has a nice deal in place with Novartis AG’s subsidiary Sandoz.

 Moreover, TLRY harvested 6,779 kilos of cannabis in 2017, which is up from 4,526 kilos in 2016. Despite strong revenue, TLRY’s expenses rose significantly last year. This trend must be reversed for the firm to achieve long-term profitability. In 2017, revenue grew 62% year-over-year (YoY), which is certainly indicative of the growth potential of the business. However, research & development, sales & marketing, and general & administrative costs grew 179%, 99% and 71% YoY respectively.

But, the scalability of the business is visible in their production numbers, where TLRY’s average cost per gram sold declined from $4.04 in 2016 to $2.84 in 2017. These declining costs helped the company more than double its gross margin, from 21% to 55%.

Tilray Inc (NASDAQ: TLRY) signals a changing of the times. The Canadian company represents a first of what will be many more IPOs coming from the cannabis industry. Many analysts see this stock as overvalued, but Canada has yet to ramp up and the growth of the cannabis market is only just beginning this is a stock to watch for its own right, but also as a barometer of what is on the horizon. Sign-up for continuing coverage on shares of $TLRY stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $TLRY, either long or short, and we have not been compensated for this article

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