Canadian cannabis producerTilray($(TLRY)$) on March 3 announced an alliance with struggling rivalHexo($(HEXO)$), a move that could give Tilray a big stake in Hexo and help Hexo untangle its debt amid intense competition. So is there any reason to buy TLRY stock now?
The move is Tilray's latest pact with a cannabis operator trying to turn itself around, after the industry in Canada and in the U.S. racked up losses and overexpanded. Tilray last year also worked out a deal that could eventually hand it a stake in MedMen, a California-based cannabis retailer that has also been trying to get its finances in order.
Hexo is trying to shrink or restructure its debt load, cut production costs and align cultivation with demand. On Monday, Hexo acknowledged an "event of default" after failing to hit the profitability target attached to that debt. However, Tilray's agreement to buy up that debt saved Hexo from making immediate repayments.
The deal with Hexo would give Tilray up to $211 million of Hexo's convertible debt, or debt that can be converted into stock at a certain point. That debt is currently held by funds tied to HT Investments MA.
Tilray would be able to convert that debt at a price of 90 Canadian cents per Hexo share, potentially giving it "a significant equity ownership position." The deal also extends the due date for Hexo's convertible debt by three years, to 2026, and revises its interest payments. The two companies also said the deal would help make cannabis production more efficient and save millions.
Between December and February, Hexo held a retail market share of 9.9% across the provinces of Alberta, British Columbia, Ontario and Saskatchewan, according to Stifel. That was the highest of any pot producer in the nation. For Tilray, that figure stood at 6.7%, giving it the fourth-highest spot.
Other Tilray Investments
Tilray merged with Aphria last year. In December, it bought Colorado-based Breckenridge Distillery, a move that adds to a U.S. presence that consists of a craft brewer and hemp-granola maker, along with the investment in MedMen.
Tilray hopes that it can use the consumer-goods companies it owns in the U.S. as a conduit for introducing THC cannabis products once pot is federally legalized.
Some analysts have raised questions about that approach. And hopes of legalization in the U.S., which occasionally lifted marijuana stocks in the wake of the 2020 election cycle, have faded.
TLRY Stock Fundamental Analysis
Earnings growth is a staple of top stocks. But the EPS Rating of TLRY stock stands at 50, with 99 being the best possible. Other Canadian marijuana stocksalso have not-great profit ratings, as they continue to lose money. The EPS Rating is a gauge of a company's profit growth.
TheComposite Ratingof TLRY stock stands at 23, according toMarketsmith chart analysis. IBD research says investors should focus on stocks with Composite Ratings of 90 or higher.
Analysts expect Tilray to lose money through this fiscal year, which concludes around the end of May. They see it losing money in the fiscal year after that.
The company'sSMR Rating— or Sales + Margins + Return on Equity rating — is a not-great D. The rating tallies the past three quarters of sales growth, pretax and after-tax profit margins and return on equity.
Tilray Stock Technical Analysis
TLRY stock began trading in July 2018 on the Nasdaq via an IPO. That IPO was the first on a big U.S. exchange from a pure-play cannabis company.
Shares soared as much as 711% last year, amid the meme-stocks frenzy. But it is still well down from last year. Shares are not in a buy zone, and no new base pattern has formed.
Is Tilray Stock A Buy?
Shares of Tilray are not in a base or in buy range. So TLRY stock is not a buy right now.
IBD advises investors to focus on stocks with stronger fundamentals that are moving into buy zones.
Source: Investors.com
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