Tilray's Earnings Call Reveals the reality of entry into the US market
On yesterday's earnings call, the overly promotional Tilray's management team emphasized that the company is ready to adapt and capitalize on the opportunities that arise from cannabis rescheduling in the U.S., depending on the specific guidelines and regulations implemented. According to the earnings call, the company outlined several ways in which it could capitalize on this regulatory change:
Medical cannabis expertise: Tilray has extensive experience in producing and selling medical cannabis in Canada and Europe. If cannabis is rescheduled in the U.S., the company believes it could leverage this expertise to distribute pharmaceutical-grade medical cannabis, subject to doctor prescriptions.
Hedgeye: The bigger picture is that schedule three means TLRY can not compete in the market's more significant, growing "adult use" segment.
Export opportunities: Tilray mentioned the possibility of exporting GMP-certified cannabis from Canada to the U.S. under NAFTA or other rules, similar to how the company currently exports cannabis to other countries.
Hedgeye: This one is quite funny. The management team implies that the flower and other products derived from products grown expensively indoors in Canada are of better quality and lower cost than products produced in the States. Who are they kidding?
Leveraging existing assets and brands: In the event of federal adult-use or medical cannabis legalization in the U.S., Tilray believes it can immediately leverage its global leadership position, know-how, and strategic strengths in operations, distribution, and brands to sell THC-infused products across its robust distribution network and sales channels in the U.S.
Hedgeye: What does this mean other than a word salad?
Potential partnership with MedMen: Tilray holds MedMen's debt and, depending on how rescheduling unfolds, sees an opportunity to execute a strategy with the MedMen brand across the U.S.
Hedgeye: The perfect example of how dumb this management team is. The CEO bought the debt of a failing U.S. operator, which is likely bankrupt now.
THC Drinks: The company sees a significant opportunity in THC-infused drinks, particularly with its existing distribution systems and brands within the beer and spirits business.
Hedgeye: Hemp-based THC drinks are all the rage today. TLTY would be taking a considerable risk entering that market today. By the time they get organized, they will be late for the game.
The Hazy Legality of Hemp-Derived Delta-9 THC: A Loophole or a Threat to the Legal Cannabis Industry?
Hemp-derived THC drinks emerged as a significant trend in the US cannabis industry in 2023 and early 2024, taking advantage of a loophole in the 2018 Farm Bill that legalized hemp and hemp-derived products containing no more than 0.3% delta-9 THC by dry weight. This allowed drinks to contain higher levels of delta-9 THC, the main psychoactive compound in marijuana, compared to traditional hemp products.
However, studies have shown that many of these products are inaccurately labeled, with 66% differing from their stated dosage by over 10%. This raises concerns about consumer safety and accessibility to minors. The effects of these drinks are similar to marijuana, including altered perception, relaxation, and potential side effects like anxiety and memory impairment. Minnesota has been a key player in this trend, with its accidental legalization of THC edibles in 2022 and subsequent formal legalization of adult-use cannabis. This has expanded consumer access to cannabis products and integrated them into mainstream retail channels.
The anticipation of the next Farm Bill has created regulatory uncertainty, shaping business strategies in the industry. Established cannabis brands like Keef and Cann have entered the hemp-derived THC market to reach new consumers and distribution channels. The legal landscape for hemp-derived delta-9 THC drinks remains inconsistent across states. Some have expressly legalized and regulated them, others fall into a "grey area," and a few have banned them outright. South Carolina, for example, has warned the hemp industry that including delta-9 THC in beverages is unlawful and banned references to "THC," "CBD," or "delta-9" on labels.
This patchwork of regulations highlights the need for clearer federal guidance to ensure consistency nationwide as the cannabis industry continues to innovate and adapt to changing consumer preferences and legal frameworks.
