3 Huge Red Flags From Tilray's Q1 Earnings Report

Last week, Tilray Brands (NASDAQ:TLRY) reported its first-quarter numbers for fiscal 2027. While management boasted of its record-breaking numbers and diversified business, investors shouldn't buy the hype at all.

Tilray has been a bad investment for many years, and acquisitions may have boosted its revenue, but they haven't changed the story around this troubling marijuana stock. It's a bad buy, and the three numbers below from its earnings report only confirm that.

Tilray's cash burn spiked to more than $16.5 million

I've written about cannabis stocks for years and know how unreliable looking at their income statements can be; they're often filled with impairment charges and valuation changes. There's a lot of noise that can make it difficult for investors to truly understand what shape the business is in. This is why I often go straight to the cash flow statement instead.

And on a cash basis, things don't look good for Tilray. Its cash burn for the period ending Aug. 31 totaled $16.5 million, which is up significantly from $1.3 million a year ago. Cash can fluctuate significantly from one period to the next. But the reality is that Tilray has often struggled to generate consistent positive cash flow from its operations. This is even before factoring in any money it uses up from investing activities, including capital expenditures.

Tilray is a cash-burning machine, and until that changes, investors should brace for and expect stock offerings, dilution, and plenty of volatility.

Its cannabis revenue fell by 13%

Tilray's cannabis revenue for the period totaled $56.1 million, which was down from $64.5 million a year ago, representing a year-over-year decline of 13%. The company's top line did rise by 23%, but that was largely due to a significant spike in its beverage business, where its BrewDog acquisition padded its numbers.

Wheeling and dealing can help manufacture this type of growth, but it's organic growth that growth investors are truly craving. Simply adding more companies to the mix can certainly make the business bigger, but not necessarily better.

Investors should tread carefully with acquisition-hungry businesses such as Tilray for this very reason, because without a way to gauge how well it's growing organically, it's difficult to see just how strong a growth stock it really is.

The fact that its core cannabis business is struggling highlights precisely why Tilray would seek investments and acquisitions elsewhere: without them, its top line wouldn't look nearly as strong.

Operating expenses soared to $101.6 million

Acquisitions can bolster the top line, but they can also drastically weigh down the bottom line. That's because a company acquires the extra staff, overhead, and other costs associated with the business. So while it may get a bump up on the top line from more revenue, it will also incur significantly more expenses. It may be able to trim some costs and remove redundancies over time, but the business will no doubt be bulkier.

Tilray's operating expenses totaled $101.6 million this past quarter, which is an increase of 83% from the same period last year. That is, however, with the company getting a $15 million benefit from the change in the fair value of contingent consideration a year ago. If that's removed, then the year-over-year increase in operating expense is 44%. But that's still higher than the company's top-line growth.

With a more bloated business, Tilray's actually going in the opposite direction of its peers, Canopy Growth and Aurora Cannabis, which have been looking to get leaner. It's not a strategy I think will end up paying off for Tilray.

Tilray's decline isn't likely to end anytime soon

Despite top-line growth, the market didn't appear impressed with Tilray's latest numbers, as the stock has fallen since it posted them. Unfortunately, I don't see a path for the stock to get out of its tailspin anytime soon. It's a stock that's full of risk and that investors are likely better off avoiding.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.