Tilray Brands, Inc. (NASDAQ:TLRY) saw its shares climb 6.4% to $4.47 in early trading on Friday, building on the previous session's 5.3% gain. The rally came as investors responded positively to the company's continued diversification away from its core cannabis business.
The stock's advance stood in stark contrast to its Canadian cannabis peers. Canopy Growth (NASDAQ:CGC), Aurora Cannabis (NASDAQ:ACB), and SNDL (NASDAQ:SNDL) all declined during the same period, underscoring that Tilray's momentum was company-specific rather than sector-wide.
Beverages and Distribution Drive Growth
Tilray's fiscal fourth-quarter results highlighted the growing importance of its non-cannabis segments. Beverage and distribution operations collectively accounted for 89% of the $57.2 million increase in quarterly revenue. The beverage segment alone contributed $50.9 million to that growth, with sales surging 61% year-over-year. Distribution revenue climbed 15%, while cannabis sales grew just 5%.
For the full fiscal year 2026, non-cannabis segments generated 71% of total revenue, a clear indication of the company's successful pivot. However, cannabis remains a vital profit driver, contributing 41% of gross profit despite representing only 29% of sales. The segment's gross margin stood at 40%, significantly higher than the 12% margin in distribution.
Margin Dynamics and Profitability
The margin disparity between segments had a notable impact on the company's overall profitability. Distribution, which accounted for 36% of total sales, contributed just 16% of gross profit. This mix dragged the company's overall gross margin down to 28% for the year, a one-point decline from the prior year.
The fourth quarter showed improvement, however, with overall gross margin expanding to 32% from 30% a year earlier. Distribution margin also improved by four percentage points during the quarter, suggesting the segment's profitability is on an upward trajectory.
Financial Performance and Outlook
For fiscal 2026, Tilray reported revenue of $915.5 million, an 11% increase from $821.3 million in the prior year. Gross profit rose 8% to $260.4 million. Adjusted EBITDA grew 11% to $61.1 million, while adjusted net income more than doubled to $12.2 million. Adjusted earnings per share increased 57% to $0.11.
The company's GAAP net loss narrowed to $105.2 million, helped by the absence of the $2.1 billion in impairments recorded in fiscal 2025. Management projects fiscal 2027 adjusted EBITDA between $68 million and $75 million, representing 11%-23% growth, with annual revenue expected to surpass $1 billion.
CEO Irwin Simon emphasized the company's strategic direction, stating, "The next chapter for Tilray will not be defined by one product, one market or one regulatory event."
Analyst Reactions and Risks
Analyst responses were mixed. Derek Lessard of TD Cowen maintained a Buy rating with a $5 price target, while Frederico Gomes at ATB and Aaron Grey of Alliance Global both reiterated Hold ratings with targets of $8 and $5, respectively.
Despite the positive earnings, concerns remain. The company reported negative operating cash flow of $69.1 million and negative free cash flow of $98.6 million. Beverage margins declined three points for the year, and shares outstanding increased 24%. Stock-based compensation totaled $45.9 million, roughly three-quarters of adjusted EBITDA. Additionally, legal challenges to U.S. cannabis rescheduling persist.
Tilray ended May with approximately $235 million in cash and securities, and net debt of just $0.7 million. The company raised $158 million through share sales during the year.
The stock's rally reflects growing investor confidence in Tilray's diversification strategy, but the company faces the challenge of converting its broader sales base into sustainable margins and internally funded growth.
