Tilray’s Sales Soar 85% in Q3: Why Investor’s Aren’t Impressed

Tilray Inc (NASDAQ:TLRY) released its quarterly earnings yesterday which continued to show strong growth with sales rising by 85% year over year. Unfortunately, with cost of sales rising sharply and gross profit shrinking from over 55% to just 31%, the company saw its gross margin increase by just 3%.

It wasn’t any better further down the income statement as operating expenses soared with share-based compensation skyrocketing from just $35,000 a year ago up to $11 million this past quarter. General and administrative expenses doubled from last year, as did selling and marketing expenses.

While Tilray’s top line may have seen a big improvement, that was about the only place there was one as the company reported an operating loss of over $20 million, nearly 10 times the $2.2 million loss it incurred a year ago.
Cash flow is also a big problem as Tilray burned through $80 million from its operating and investing activities, needing to issue shares in order to keep from running out of cash. That could be a big problem for investors because if the company can’t generate positive cash flow that could mean more dilution of its shares and lower returns for investors.

It might come as no surprise then that despite the strong sales growth, Tilray’s stock was down in after-hours trading. In fact, this is a trend we’ve started to notice not just with Tilray but other marijuana stocks that have been reporting earnings this week. Investors are no longer showing excitement around high sales growth and are instead looking for more substance and profitability.