Tilray Brands Could Finally Be on a Path to Profitability, All Thanks to This Strategic Move

Revealing true, unadjusted accounting profits in the cannabis industry is no small feat. This is especially true in Canada, where competition is fierce due to the growing number of competitors. One Canadian cannabis company that has shown significant progress in strengthening its finances is Tilray Brands (TLRY -1.89%).

Although the company often published positive reviews, adapted earnings numbers, it finally looks like it could be on track to stay in the black without a correction. That’s a promising development, and it all comes down to one key strategic move the company made.

Tilray drastically narrows net loss in Q4

On July 29, Tilray reported its fourth-quarter results, which ended May 31. The company not only achieved solid revenue growth of 25% year over year, reaching $229.9 million, but also saw a significant improvement in its bottom line. Tilray reported a net loss of $15.4 million for the quarter, compared with a loss of $119.8 million in the same period last year.

It benefited from a large income tax refund of $27.6 million, but even its operating loss of just over $43 million was not as large as the $111.7 million operating loss that Tilray reported during the same period the previous year. Whichever way you look at it, Tilray’s net income improved significantly.

Why Tilray is doing so much better

The main reason Tilray’s results are better is simple but ironic: The company is diversifying and is no longer just a cannabis company. Tilray has become one of the largest craft brewers in the U.S. through acquisitions. Last year, it acquired eight beverage brands from Anheuser-Busch InBevwhich helped Tilray secure about 5% of the U.S. craft beer market

As a result of the move, Tilray’s alcoholic beverage business is booming. In the latest quarter, revenue from the segment totaled $76.7 million, more than double the $32.4 million it generated last year. That was also more than Tilray’s core cannabis business, which brought in $71.9 million. The company also generates revenue from wellness products and its distribution business, which is mostly pharmaceutical.

More importantly, Tilray is seeing better margins in alcohol than in any other segment. The adjusted gross margin for the alcoholic beverage segment was 53% last quarter, compared to 40% for cannabis, 31% for wellness and just 12% for distribution. As it moves deeper into alcohol, Tilray is making progress not only in growing revenue but also in growing gross margin, which puts it in a better position to stay out of the red. It’s not there yet, but it’s definitely heading in the right direction.

Is Tilray Brands stock a good investment today?

Tilray Brands is showing signs of progress, but it may still be too early to invest in what remains a risky stock. Tilray shares are down more than 95% in five years. The company has a lot to prove, and while it is making progress, it has yet to generate real accounting profits. Until it does, investors are right to be cautious. The company could be on the hunt for more acquisitions to continue to grow its business, and depending on which companies Tilray Brands targets, it could have a drastic impact on its future growth prospects and ability to turn a profit.

While Tilray had a strong quarter with some strong results on both the top and bottom lines, investors should be careful not to read too much into these numbers, as there is still a lot of risk and uncertainty ahead for the stock. A wait-and-see approach may be the best bet for Tilray to see if it can build on these solid quarterly results. If so, it may be time to finally consider taking a chance on the stock.

For now, however, it would be best to remain on the sidelines.