Canopy Growth vs. Tilray: How Do They Compete?

The cannabis industry has been growing rapidly since Canopy Growth Corp. (CGC) and Tilray (TLRY) began trading in 2018. However, cannabis companies are somewhat untested, and many have yet to earn a profit.

The industry continues to face significant legal and regulatory thresholds in the United States. On the surface, both Tilray and Canopy share much in common since they are based in Canada, where recreational marijuana use was legalized in October 2018.

Both companies have also made headlines for their aggressive expansion practices and ambitious plans through acquisitions. This article reviews the product offerings of Tilray and Canopy Growth, their recent financial performance, and the legalization status of cannabis in the United States.

Tilray Inc. (TLRY)

Tilray, Inc. is a cannabis consumer packaged goods company operating in Canada, the United States, Australia, and Europe. Tilray launched its initial public offering (IPO) in July 2018, providing it with a large influx of cash to invest in its expansion and production.

In October of 2018, Tilray expanded in Latin America by acquiring Alef Biotechnology, its import and distribution partner for medical cannabis.

Tilray's cannabis business includes the cultivation, production, distribution, and sale of medical and adult cannabis products. Tilray's business also involves the purchase and resale of pharmaceutical products to customers. Tilray produces, markets, and distributes hemp-based foods and other wellness products as part of its wellness business. The company also has a beverage alcohol business segment.

Financial Results

Cannabis products saw a rise in usage due to the lockdowns caused by the COVID-19 pandemic. As a result, Tilray earned C$513 million in its fiscal year ending May 31, 2021, (or USD$425 million at the May 31, USDCAD exchange rate of .8291) up from nearly C$391 million in annual revenue for 2020.

The company took a net loss of more than C$367 million for 2021 versus a loss of more than C$61 million for 2020. The company hasn't earned an annual profit since 2018.

Tilray's stock price has come off its lofty highs from 2018 when it traded at over $140 per share. Delays in legalization due to regulations and the coronavirus pandemic have put pressure on the stock. On Feb. 1, 2021, the stock price closed at $24.36, and by Nov. 4, 2021, it closed at $10.81 per share.

Merger With Aphria

In May 2021, Tilray and its competitor, Aphria, announced a merger.  The combined company creates the largest global geographic footprint in the cannabis industry. The company will pursue international opportunities selling medical cannabis in the European Union and has production facilities in Portugal and Germany.

The combined company diversifies the product offerings. For example, cannabis was only 33% of Aphria's revenue, while 57% was from distribution and 10% from alcoholic beverages. Tilray has approximately 73% of its revenue coming from medical and recreational marijuana or hemp.

The company expects C$81 million or C$100 million in pretax cost synergies within 18 months following the merger. The areas with the most cost synergies will be cultivation and production, sales and marketing, cannabis and product purchasing, and corporate expenses.

Although it's unclear exactly what the sales will be in the future, Tilray's Company Chairman and Chief Executive Officer, Irwin D. Simon, had this to say about the combined entity:

"Tilray is poised to strike and transform the industry with our highly scalable operational footprint, a curated portfolio of diverse medical and adult-use cannabis brands and products, a multi-continent distribution network, and a robust capital structure to fund our global expansion strategy and deliver sustained profitability and long-term value for our stakeholders."

Canopy Growth Corporation (CGC)

Canopy Growth had its IPO in May 2018. In the same year, beer giant Constellation Brands (STZ) bought up $4 billion worth of the Canopy, purchasing more than 104 million shares of common stock. The cash helped Canopy finance its development, research, and expansion efforts. Canopy bought up several companies in 2018, including Manitoba-based cannabis company Hiku Brands and Colorado-based research outfit Ebbu.

Canopy Growth was formerly known as Tweed Marijuana Inc. The company is a cannabis company based in Canada, producing and selling legal marijuana in the Canadian medical market. Canopy is also looking to expand and sell marijuana for recreational purposes in Canada.

Tweed is Canopy's licensed medical marijuana brand that has a facility with nearly 168,000 square feet capable of producing and selling nearly 3,540 kilograms of medical marijuana per year. Bedrocan is Canopy's other licensed brand selling medical-grade cannabis with over 52,000 square feet in its production facility in Toronto, Ontario.

Financial Performance

Canopy earned slightly more than C$546 million in net revenue (or USD$434 million at the March 31, USDCAD exchange rate of .7959) in its fiscal year ending March 31, 2021; up from nearly C$399 million in 2020.

The company took a significant net loss of approximately C$1.74 billion for 2021 versus a C$1.32 billion loss in 2020. Although revenue growth has been solid, the company reported nearly C$78 million in revenue in 2018; it has yet to turn a profit.

Canopy's stock price reflects the impatience with Cannabis investors who were hoping for huge price gains by now. In January 2021, the stock price was over $40, and by Nov. 4, 2021, it closed at $13.21.

Cannabis Market

As more states in the U.S. legalize cannabis for medical and recreational use, companies like Tilray and Canopy Growth will have an expanded market to target. According to a study by New Frontier Data, the U.S. should see ten newly legalized cannabis markets opening up in 2021 or 2022, which projects a 16% growth rate in cannabis sales by 2025, totaling $43 billion.

Also, the study found that the number of registered patients in medical cannabis is expected to reach 5.4 million Americans by 2025. Currently, 43% of the adult population live in adult-use states or 141 million Americans.

However, there are challenges for the cannabis industry due to many U.S. regulations surrounding the use of cannabis and the quantities allowed. State restrictions may include medical use only—38 states allow it—while medical and adult use is only approved in 18 states.

In the future, the legalization of marijuana in Europe and the United States for both recreational and medical use will be critical for companies like Tilray and Canopy Growth as well as the cannabis industry's success.