Tilray Inc. (NASDAQ:TLRY) is expanding its cannabis production facilities and has made agreements with existing pharmaceutical distributors in 12 countries
SmallCapPower | August 8, 2018: Tilray Inc. (NASDAQ:TLRY) is focused on the research, cultivation, production and distribution of medical cannabis and cannabinoids. The Company is the first licensed producer of medical cannabis in the world to have its facility Good Manufacturing Practices (GMP) certified, as per European Medicine Agency (EMA) standards. Currently, Tilray serves several physicians, pharmacies, governments, hospitals, and researchers across continents via its affiliated entities in Australia and New Zealand (Tilray Australia New Zealand Pty Ltd), Canada (Tilray Canada Ltd), Germany (Tilray Deutschland GmbH), and Portugal (Tilray Portugal Unipessoal Lda).
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Tilray is the third cannabis company to get listed on a U.S. stock exchange, after Cronos Group (NASDAQ:CRON) (TSX:CRON) and Canopy Growth Corporation (NYSE:CGC) (TSX:WEED), but the first to raise capital via a U.S. listing. However, both Cronos and Canopy first traded publicly in Canada before listing on U.S. stock exchanges. Tilray became listed on NASDAQ on July 19, 2018 under the ticker ‘TLRY’.
Tilray has wide variety of cannabis products supported by a strong sales and distribution network. Tilray currently trades at a market capitalization of US$2.1 billion on NASDAQ. Tilray’s investment merit should be judged on its growth outlook, underpinned by its expanding international presence, and the recreational Canadian opportunity, expected to begin in October 2018.
Investment Thesis
- Broad portfolio of cannabis brands
- Significant presence across the globe
- Robust sales and distribution network
Broad portfolio of cannabis brands
Tilray has wide variety of differentiated cannabis brands and products designed to attract a diverse set of patients and consumers. With the upcoming legalization of recreational marijuana in Canada, the Company’s products will be customized to meet requirements, such as the inclusion of health warnings on labels and restrictions on marketing.
For the past several years, Tilray has conducted research in more than a dozen nations by consulting third-party industry databases with consumer insights, by commissioning proprietary third-party research and by licensing intellectual property from established cannabis brands. The Company has data licensing agreement with Leafly, which provides information about the desires by patients and consumers for brands and products in Canada.
The Company’s medical products are branded under ‘Tilray’, which are designed to target the global medical market by offering a wide range of high-quality medical cannabis and cannabinoid-based products.
The Company has grown more 50 strains of cannabis and developed a variety of products and formulations. The portfolio of medical cannabis products includes the following form factor platforms – whole flower (available in 5 or 15 gram containers), ground flower (available in 15 gram containers), Full-spectrum oil drops and capsules (oil drops are available in 25mL and 40mL sizes and capsules are available in 25, 40 or 50 unit packages), purified oil drops and capsules (oil drops are available in 25mL and 40mL sizes and capsules are available in 25, 40 or 50 unit packages), and clinical compounds (packaging and quantities customized based on application).
With the legalization of recreational adult-use marijuana in Canada, Tilray’s secured the exclusive rights from Privateer Holdings to produce and distribute certain adult-use brands and products in Canada. The brand licensing agreement includes the rights to recognized brands and proprietary product formulations for a wide range of products. Additionally, new brands are being developed for the adult-use market in Canada that will be wholly owned by Tilray, such as CANACA.
Significant presence across the globe
Tilray’s global headquarters is located in Nanaimo, British Columbia in Canada. The facility, Tilray Nanaimo, is a 60,000-square foot facility that houses approximately 40,000 plants in 33 cultivation rooms, five manufacturing and processing rooms and three laboratories, including an advanced extraction laboratory. The facility produces over 50 distinct cannabis strains and various cannabis extract products. Nanaimo facility’s prime objective is to serve the Canadian medical market and the global medical export market in the near term.
Tilray Nanaimo is licensed by Health Canada and is GMP – certified by multiple EU recognized health regulators. The facility also features a patient and physician service center that is open 24 hours a day, seven days a week. The production process involves housing mother stock, cutting clones, cultivating pre-vegetative, negative and flowering plants; curing harvest plants; securing product in the vault; trimming product; extracting cannabinoids from harvested products; analyzing products in our lab; and packaging and shipping.
The Company has regional offices in Toronto, Berlin, and Sydney. Tilray is planning to build a 109,000-square foot greenhouse, a 65,000-square foot outdoor grow plot and a 56,000-square foot processing facility on its Portugal campus with an expected completion date by the end of this quarter. The first harvest at Tilray Portugal is anticipated in fall 2018. Additionally, Tilray has facilities in Ontario.
Tilray believes that its total production space across all facilities worldwide will be ~912,000 square feet after the development of additional production facilities and necessary amendments in licenses as a licensed producer.
Robust sales and distribution network
Tilray has robust sales and distribution network in Canada and beyond. The Company has a definitive distribution agreement with Shoppers Drug Mart, the largest pharmacy chain in Canada. This is subject to the approval of Shoppers’ application to become a licensed producer. Furthermore, Tilray has a binding letter of intent to become a preferred supplier of cannabis products to Pharmasave as well as a collaboration agreement with Sandoz Canada, a division of Novartis, to market non-combustible products to health care practitioners and pharmacists and to co-develop new cannabis products.
In Germany, the Company’s products are distributed through multiple wholesalers including Noweda, a cooperative comprised of ~9,000 pharmacists with a network of 16,000 pharmacies. Apart from this, Tilray has agreements with distributors in Argentina, Australia, Chile, Croatia, Cyprus, the Czech Republic, New Zealand and South Africa, through which products are sold. Tilray has agreements in place with distributors in Brazil, Peru, Poland and Denmark, even though the products are not currently available in these countries.
Tilray is geared up for adult-use recreational legalization in Canada and has supply agreements in Quebec, Yukon, Northwest Territories, and Manitoba. The Company expects more supply agreements in Alberta, British Columbia, and Ontario.
Outlook and Valuation
In terms of valuation, Tilray currently trades at a market capitalization of US$2.1 billion on NASDAQ. The Company is expanding its cannabis production facilities and increasing its footprint across the globe having made agreements with existing pharmaceutical distributors in 12 countries, including four clinical trials in three nations. Tilray is also prepared for the anticipated proliferating demand for adult-use marijuana by having supply agreements in several Canadian provinces. The Company’s business operations look promising and its valuation could increase substantially over the long term.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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