Cash strapped Tilray issues stock to raise funds; shares drop 32%

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Tilray

As coronavirus fears continue to grow in the minds of investors, financial markets around the world continue to react with losses for the most part. With everything that’s going on, cannabis stocks have been hard hit as well.

While many investors were hoping that 2020 would be the start of a turnaround for the industry, which already had a terrible 2019 when other sectors were doing fine, the spread of the coronavirus among other problems, has sent cannabis stocks plummeting.

One major pot stock, Tilray (NASDAQ: TLRY) plunged as much as 32% on Friday after the company announced it was raising some desperately needed funds via a stock offering.

Tilray announced that it was going to raise around $90.4 million via an all-stock offering priced at just $4.76 per share, a pretty low price point considering the company was trading around $20 per share in February. Back in 2018 when Tilray first went public, it traded at around $17 per share before skyrocketing to around $300 in September 2018. Investors who have held onto their money all this time have suffered significantly for their patience.

“Given unprecedented stock market conditions amidst concern over coronavirus, today’s financing has strengthened Tilray’s balance sheet and de-risked the company’s pathway to being [earnings before interest taxes depreciation and amortization] positive by [the fourth quarter of] 2020,” said Tilray in an emailed statement.

Analysts covering cannabis companies right now have warned that a similar trend could be seen from other pot stocks in the future, as companies look to raise further to funds to finance their operations. While some companies, like Canopy Growth, are the exception with plenty of cash on hand, other stocks like Aurora Cannabis and HEXO could be facing a cash crunch in the near future if they don’t do something. On the chance that they also issue stock in an effort to raise cash, investors should expect a similar drop in share prices.

Tilray ended up dropping 32% in light of the news. In comparison, most of the sector had a good day on Friday, with Aurora and HEXO ending last week up around 10%. Most analysts covering Tilray’s stock remain hesitant about its prospects. 14 of the 18 analysts that have a rating on the company all have a neutral “hold” rating, in comparison to the four “buys.”

Coronavirus cases are continued to spread across the U.S., Canada, and Europe, something that’s also likely to impact sales of cannabis for 2020. It’s expected that consumers will be making less frequent tricks for marijuana, with the overall reduction in foot traffic likely to hurt most companies’ financial figures. Thinks aren’t looking that great for the sector overall.

 

Tilray Company Profile

Tilray, headquartered in Nanaimo, Canada, cultivates and sells medical and recreational cannabis through a portfolio of brands that include Canaca, Dubon, and Manitoba Harvest. The bulk of Tilray’s sales are in Canada, but the company also sells CBD Products in the U.S. and exports medical cannabis globally from its production facilities in Canada and Portugal. Tilray also has a joint venture partnership with AB InBev to develop cannabis-infused drinks. – Warrior Trading News

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