Cowen Research Archives - Green Market Report

Debra BorchardtAugust 13, 2018


Cowen Research initiated coverage on Tilray Inc. with an Outperform rating and a $34 price target. Analyst Vivien Azer is forecasting total company revenues of $44 million in the fiscal year 2018, $163 million in the fiscal year 2019, $346 million in the fiscal year 2020 and $503 million in the fiscal year 2021. She believes the company will break even in early 2019 with EBITDA margins in the mid-to-high 20% by 2020, which would be similar to the alcohol companies that Azer covers.

Price Target

The $34 price target is assuming a nine times equity value and compares to Canopy Growth’s (CGC) which is currently trading at 11 times Cowen’s CY3 revenue estimates. Tilray was lately trading at $26.90. It had expected to price its IPO in the range of $14-16, but ended up at $17. It closed at $22 on its first day of trading and has traded as high as $34 since going public in July.

Competitive Advantage

Azer believes that Tilray’s partnership with Privateer gives the company a competitive advantage to leverage U.S. brands, which is particularly important because Canada is restricting what the product packaging can look like. Also, Tilray’s association with cannabis review website Leafly will help the company learn what consumers are searching for and be prepared to deliver products to meet those changing preferences. Azer wrote, “We think Tilray has a defensible position to capture initial adult use market share.”

While the company’s international expansion is still in early stages, Cowen thinks there is a large market opportunity and could potentially lead to an increase in the estimates. The base case for the international revenue from Germany, Australia, and New Zealand is $1.1 billion, but the upside to that figure is $2.8 billion as Tilray adds more countries to its portfolio.

Tilray’s brand portfolio includes Marley Natural,  women’s line Irisa, edibles brand Goodship, Grail pre-rolls, price-conscious Dutchy, high-potency products from Headlight and Wallops high-potency edibles. Essentially the company has a brand for virtually every segment of the market.

Cannabis Prices To Fall

Azer’s team at Cowen is modeling for the steepest decline in average selling prices to come in 2019. Even though adult use sales will begin at the end of 2018, the potential for increased supply will put pressure on pricing. “We estimate that production capacity will increase nine times from current levels if the top 11 Canadian LP’s achieve their planned capacity expansions. We would note that we have heard some skepticism around the achievability of these plans, given the size of some of those planned increases.”

Deloitte’s 2018 Canada survey is supporting a, $8 a gram price with a willingness from consumers to pay $9 a gram. If prices reached $11 a gram, they would likely quit buying the product. That doesn’t seem to be a scenario facing these companies. Cowen estimates prices to fall to $7.96 a gram in 2019 and ultimately sliding down to $6.83 by 2025.


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