Gordon Johnson Lowers Tilray Price Target To Zero, Says Cannabis Company's Guidance 'Aspirational'

GLJ Research is zeroing out its Tilray Inc TLRY price target in the wake of the cannabis company's fourth-quarter report Monday

The Tilray Analyst

Gordon Johnson II maintained a Sell rating and lowered the price target for Tilray from $5 to $0, suggesting the equity is essentially worthless.

The Tilray Thesis

The 8.2% quarter-over-quarter drop in Tilray's fourth-quarter revenue should set off an alarm bell, given the shares are trading at a 3.3 times forward price-to-sales multiple, Johnson said in a Wednesday note. (See his track record here.) 

Tilray took $68.6 million in inventory valuation adjustments in the fourth quarter, which equates to more than 41% of the company's full-year sales, the analyst said. 

"In fact, even after adjusting 70% of its 4Q19 losses away, TLRY's 4Q19 non-GAAP loss was over 36% more than its 4Q19 revenue."

Despite the $70 million at-the-market stock issuance in the fourth quarter and an incremental debt offering of $2.23 million, Tilray's fourth-quarter cash and investments balance fell $26 million from the previous quarter, suggesting a quarterly cash burn rate of $98 million, Johnson said. 

A collateral-based funding arrangement is unlikely, given more than 43% of balance sheet assets are made up of goodwill and intangible assets, he said. 

"Thus, while TLRY is guiding to positive EBITDA by 4Q20, with its performance sharply lagging bottom line 2019 GAAP EPS expectations thru 2019, we see this forecast as aspirational."

Tilray issued $60 million debt in late February bearing an interest rate of about 12%, entailing quarterly interest expenses of $7 million, Johnson said. 

This suggests the credit markets see elevated risk in the company's near-to-intermediate term outlook, according to GLJ Research. 

TLRY Price Action

Tilray shares were slipping 10.87% to $11.15 at the time of publication Thursday. 

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