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Investor optimism about the future of marijuana has turned Tilray Inc. (NASDAQ: TLRY) in the largest stock of marijuana by market capitalization; however, Aurora Cannabis (NASDAQOTH: ACBFF) and Canopy growth (NYSE: CGC) are much larger businesses based on marijuana production and revenues. Could they benefit more than Tilray from the Canadian recreational market?
Production plants
With only 17.8 million shares available for sale, Tilray shares are more exposed to breathtaking pops and drops than those of Aurora Cannabis and Canopy Growth. Tilray's relative illiquidity has contributed significantly to its rebound of 700% and more since its IPO in July. (Let me repeat: Tilray has won more than 700% in less than three months!)
SOURCE OF IMAGE: GETTY IMAGES.
Tilray's outstanding performance has attracted the attention of investors, but it may be better to focus on its competitors. Why? Because the previous investments of Aurora Cannabis and Canopy Growth in marijuana production should allow them to gain more market share than Tilray when the Canadian market for recreational marijuana opens its doors next month.
The size advantage of Aurora Cannabis and Canopy Growth over Tilray is significant. With a production capacity funded of approximately 570,000 kilograms next year, Aurora Cannabis could have the largest capacity available to meet the growing demand for marijuana. Canopy Growth is expected to have more than 500,000 kilograms of production capacity next year.
Tilray is a bit of size by comparison. Earlier this year, it announced that it would have about 76,000 kilograms of capacity by the end of 2018 and only about 150,000 kilos of capacity by the end of 2019. This means that annual marijuana production of Tilray being less than one-third that of Aurora cannabis and canopy growth.
Earn income
Tilray's revenue increase of 95% year-over-year to C $ 12.7 million (US $ 9.7 million) is impressive, but despite this increase, its revenues are still below the sales of Aurora Cannabis and Canopy Growth. In their last quarters, Aurora Cannabis had sales of C $ 16.1 / Can $ 12.7m and Canopy Growth had C $ 25.9m / $ 20.1m US dollars.
CGC revenue data (quarterly) by YCharts.
One of the strong arguments for ignoring the commercial disadvantage of Tilray vis-à-vis its competitors is that Tilray achieves about 45% of its sales of marijuana extracts, such as oils, which are more expensive than dried flowers.
It is true that a higher percentage of sales comes from oils, but Aurora Cannabis and Canopy Growth are not going to let Tilray have this market all by itself. They fully understand the benefits of the sale of finished products in terms of price and profit and, as a result, they also focus on products like cannabis oil, which puts them increasingly in competition with Tilray. In the last quarter, approximately 26% of Canopy Growth's revenues came from oils and capsules, up from 19% in the same quarter last year, and oils accounted for approximately 20% of Aurora product sales.
I think it's a good bet that Aurora Cannabis and Canopy Growth will be competing more and more on Tilray turf, and if so, the benefit of Tilray's product mix could be better. 39; fade.
What happens next
The three companies have accumulated marijuana to start operating next month when Canada's recreational sales begin. I think Tilray will experience strong sales growth due to the growth of the addressable marijuana market next year, but I think it will be Aurora Cannabis and Canopy Growth that will reap the lion's share of sales. For this reason, investors interested in owning marijuana may want to focus on larger players, at least until Tilray lowers its prices.
Todd Campbell has no position in the mentioned actions. His clients may have positions in the companies mentioned. The Motley Fool has no position in the stocks mentioned. Motley Fool has a disclosure policy.
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