EUR 850.00 For Business Accounts Only

Morningstar | Initiating on Fast-Growing Cannabis Industry: We See Tilray as Fairly Valued

We are initiating coverage of cannabis, an industry we forecast to grow by 9 times through 2030 amid widening legalization and increased participation for the Canadian, international, and U.S. markets.

For Canada, despite recent recreational legalization, cannabis has penetrated just 12% of our estimated market, setting the stage for 20% CAGR through 2030.

For the international market, we forecast market potential of nearly $43 billion and 23% CAGR through 2030 as more and more countries recognize the benefits of medical cannabis. However, increasing competition from other countries could limit the opportunity for Canadian producers to $20 billion.

For the U.S., recreational and medicinal cannabis has penetrated just 8% and 21% of their estimated markets, leading to 25% CAGR and 15% CAGR through 2030, respectively. We expect six more states to legalize recreational cannabis and three states to expand commercial distribution. Furthermore, we expect the federal government will recognize states’ right to decide legality.

We are initiating coverage of Tilray, which cultivates and sells cannabis in Canada and exports to 13 countries. Our fair value estimate is $40 per share. Our fair value estimate is based on a 10-year explicit forecast that assumes roughly 24% volume CAGR, roughly 4% price CAGR, and a 2028 operating margin before plant adjustments of 30%. We assign the company a no-moat rating and stable moat trend, as it will struggle to earn economic profit as it spends on growth in the early-stage industry.

At today’s price, we see shares as fairly valued. Tilray has pursued options to improve its international and recreational competitiveness. It has expanded cultivation facilities to Portugal to supply European demand with cheaper production. A partnership with AB InBev also can help it create cannabis-infused drinks, while a partnership with Authentic Brands Group will help it market CBD products in the U.S.

For more details on the cannabis industry and our market forecasts, please see our observer, “Green Rush: Cannabis Market Will Grow by 9 Times by 2030 Amid Widening Legalization.”