When Tilray reported its fiscal Q1 three months ago, CEO Irwin Simon described the company’s market-share in Canada as 16%. The company has shared an objective to reach 30% share by 2024 through organic and non-organic means, which it suggests will yield $1 billion in revenue. Tomorrow, when the company reports its fiscal Q2, it is very likely to reveal that it lost market share over the past three months. Hifyre’s point of sales data suggests that the combined share of Tilray and Aphria eroded steadily throughout 2021:

Hifyre estimates that Tilray’s market share fell from 15.7% in its Q1 ending in August, which ties out to Simon’s 16% characterization, to 12.7% in its Q2 ending in November, a loss of 300 basis points in a single quarter. Said differently, the sale of Tilray products fell almost 15% from the prior quarter while the overall market expanded nearly 5%. Tilray is not alone in this regard, as the largest LPs by revenue have all been losing share.

We have cautioned subscribers at our premium service 420 Investor, which provides in-depth cannabis stock analysis, that the company is likely to fall short of analyst estimates for Q2 revenue at $174 million. In its Q1, overall revenue was $168 million, with cannabis at $70.4 million (42% of total revenue), which we estimate was down about 15% from a year ago. Adult-use cannabis, which was $50 million (71% of cannabis revenue), with the balance in medical, wholesale and international, declined by 7% compared to a year ago by our estimate as the overall market grew 47%. With the other components of revenue not likely to grow significantly from Q1, a 10-20% decline in adult-use cannabis revenue will likely weigh heavily on overall revenue growth. Of course, sales at retail don’t necessarily correlate perfectly with actual wholesale sales by LPs to the provinces.

Another short-fall in adult-use cannabis sales could not only weigh on the stock, but it could also lead to write-downs of inventory or its production capacity potentially. At 8/31, the company had $178.4 million in cannabis inventory as well as $25.6 million in packaging inventory. Its fixed assets exceeded $600 million, and subsequent to last quarter the company has revealed that it will be shutting the original Tilray facility in British Columbia. Investors should be prepared for impairment charges, in our view. Finally, Tilray’s weakness in the Canadian adult-use market is likely to spur the company to get more aggressive on M&A both within and beyond Canada.