TLRY'S HAIL MARY
The proposed agreement between TLRY and HEXO is a head-scratcher, but CEO Irwin Simon was upfront on the call about a few things. Under the terms of the proposed agreement, Tilray Brands would acquire up to $211M of senior secured convertible notes issued by HEXO and are currently held by funds affiliated with H.T. Investments MA LLC.
HEXO was a going concern company until yesterday, so why would TLRY bail out a significant competitor? Spending $200+/- million or about 60% of the cash on the balance sheet to add C$0.04 to EPS is not a good strategy. What seems more plausible is Irwin taking a flyer on HEXO'S fixing its issues and becoming a legitimate company, but that means a better competitor for TLRY. The Notes would be amended to permit Tilray Brands to exercise conversion rights for C$0.90 per HEXO Share, and as Irwin said on the call, TLRY would stand to benefit, making the investment look smart, if HEXO can be fixed. If can't be fixed and the company needs to be liquidated TLRY will not get all its money back. That said, what exactly are "HEXO's considerable growth opportunities, or how exactly do two competitors realize significant commercial benefits with production efficiencies and support services savings of up to C$50M? with all this can HEXO get back to $5? Unlikely!
The TLRY CEO also revealed a bit of desperation on the call when he said: "And I've laid out there how we get to $4 million. Not everything falls in place as originally thought it would be, as we thought legalization would be much further ahead. And that's why as a company, you have to be nimble, you have to be flexible, and you have to look at how you change to get there and play within the cannabis world, the consumer world, and to grow an industry."
What is clear from that statement is Irwin is behind on his goal to get $4 billion in revenues by 2024, because he can't enter the USA Cannabis market. I believe that spending 60% of your available cash on HEXO converts makes that goal even more challenging to achieve. The more exciting divergence in strategy is HEXO writing down its investments Truss Beverages in 4Q2021, and now it's getting in bed with another Cannabis company that wants to get bigger in beverages.
CURLF STRONG QUARTER
After last night's call (including the strong GTI quarter), it is safe to say the Cannabis world as we know it is not ending!
CURA reported 4Q21 Revenue $320.0M vs FactSet $323.4M up 39% YoY backed by 37% YoY growth and 46% YoY growth in retail revenue and wholesale revenue, respectively; EPS ($0.04) vs year-ago ($0.06). New retail store openings, wholesale partner accounts, product launches, and cultivation and production facilities drive organic growth. The retail store count stood at 117 at the year-end, up from 96 a year ago; as of Mar 2022, the company's retail footprint reached 126. The company also saw gross profit margins improve by 190 basis points from Q4 2020 to 49.8%, up from 4Q21 48%.
The best news from the call was management confidence that N.J. will begin recreational sales by May 2022.
Other Management Comments:
"2021 was another exceptional year for Curaleaf. We reached a significant milestone by generating over 90% revenue growth and exceeding $1.2B of total revenue for the first time. We continued to deliver gross and Adjusted EBITDA margin expansion and ended the year with one of the strongest balance sheets in the industry to support our ongoing growth strategies. In addition, we announced strategic acquisitions that have strengthened our ability to continue gaining share in key U.S. markets and internationally. Looking to 2022, we remain focused on executing our plan for strong, above-market revenue growth and margin accretion, and believe we are incredibly well-positioned to benefit from significant near-term catalysts such as the anticipated launch of New Jersey's adult-use market."
"In 2021, we made significant progress strengthening all areas of our business including growing our retail and wholesale distribution, introducing new products, expanding our cultivation and production capacity, and entering new markets such as Europe. I believe our focus and strong execution in 2021 set us up extraordinarily well for the significant growth opportunities that lie ahead in 2022 and beyond. I am incredibly proud of the hard work and dedication of all our team members who have made our continued success possible. I believe Curaleaf is better positioned than ever to capitalize on the massive and growing cannabis opportunity."
