Tilray Brands (TLRY:NSD) experienced a significant decline in its stock price yesterday following the announcement of a $150 million convertible senior note offering. The news raised concerns among investors regarding the potential dilutive impact of the offering, leading to the decline in TLRY stock.
The cannabis producer disclosed that it plans to issue convertible senior notes due in 2027. Despite efforts by the company to reassure investors that the offering would have less dilution compared to a common stock issue, the share price still experienced a downturn.
As part of the offering, Tilray granted the underwriters a 30-day period to purchase up to an additional $22.5 million worth of notes. The expected closing date for the offering is May 31, 2023.
Tilray intends to utilize approximately $144.8 million of the net proceeds to repurchase a portion of its existing debt, which includes outstanding 5% convertible senior notes due in 2023 and 5.25% convertible senior notes due in 2024.
It’s worth noting that as of February 28, Tilray held cash and cash equivalents amounting to $408.3 million, a notable increase from $279.2 million in the previous year. During the fiscal Q3 earnings call on April 10, the company indicated that it expects positive free cash flow across all business segments in Fiscal 2023.
TLRY Stock-Future Outlook:
Considering the current state of TLRY stock, it is important to assess its potential as an investment. Despite facing regulatory pressure in Canada and a delay in U.S. federal legalization, Tilray has managed to report positive adjusted EBITDA for 16 consecutive quarters. The company’s growing presence in the U.S. and Europe presents an opportunity for improved performance in the future.
On Wall Street, Tilray currently holds a Buy consensus analyst rating based on two Buy recommendations and three Holds. The average price target for TLRY stock stands at $3.50, suggesting a potential upside of nearly 48%. However, it’s important to note that TLRY shares have experienced a 14.3% decline year-to-date.
In conclusion, Tilray’s recent stock decline can be attributed to the announcement of a convertible senior note offering. While concerns about dilution impact investors’ sentiment, Tilray’s positive adjusted EBITDA track record and its expanding presence in the U.S. and Europe provide potential growth opportunities. Investors should carefully assess the company’s financials and market outlook before making any investment decisions.