TILT Holdings TLLTF Stock With Significant Upside Potential

TILT Holdings TLLTF Stock was once one of my top picks when I first launched this site.  There were metrics that I liked about this cannabis company and I felt that potentially, TLLTF was an undervalued marijuana stock.  Revenues are starting to increase and other metrics are holding steady at levels that are ultra-competitive.  Yet, gross margins remain lower than the highest levels.  At the same time, there may be a bit of stigma behind previous management.  Where this could be a detriment to current share holders of TLLTF, it is an opportunity for future shareholders.  Also, there are several new developments for the company and this will add more revenue moving forward.

But, what I wanted to look at was a natural progression of the existing infrastructure and show how small increases in revenue will add additionally to the bottom line.  Right now, gross margins are shallow at about 30%.  But, operating efficiencies are also at 30%, showing that management is keeping operating costs in check relative to revenue.  That is very promising.

TILT Holdings is EBTIDA profitable and, so, increases in revenue will add increasing marginal profits to the bottom line.  Ultimately, TILT Holdings was removed from my Top Picks as I saw a lag in the gross margins and revenue growth.  Revenue is starting to heat up and gross margins will surely follow.

Let’s break down what this might look like.

TILT Holdings TLLTF Stock Comparison

Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:

  • #31 Market Cap: $120M
  • #53 Revenue Growth Rate: 3.2%
  • #53 Gross Margins: 30.2%
  • #10 Operating Efficiencies: 30.9%
  • #21 EBITDA/Revenue: 9.9%
  • #79 Cash/Debt Ratio: 6.1%
  • #12 Total Assets $279M

TILT compares nicely with regards to where they are in certain metrics.  If gross margins would increase, and by extension EBTIDA/Revenue, TILT Holdings would stack up very nicely against other cannabis stocks and could easily be considered an undervalued marijuana stock.

TILT Holdings TLLTF Stock Financial Data

I want to do a natural progression of increasing revenue and show where TILT Holdings would be versus other undervalued marijuana stocks.

Revenue

Here is the current revenue and this is what caught my eye getting me to look at TILT Holdings once again:

TILT Holdings Revenue
Revenue: To see TILT Holdings complete financial data visit TLLTF Stock page

Out of the 100 stocks I have on my list, for Q2, revenues increased 7.5% collectively.  About half of the stocks increased in revenue and the other half decreased.  Yet, 50%/50% weighting, the increases far outweighed the decreases.  The increase QoQ is consistent with other quarters.

Therefore, if we applied an average increase over the next six quarters TILT Holdings could be printing $75M in the last quarter of next year; 50% increase from today.  Keep in mind, I am using a natural progression but, I am also disregarding new developments within the company.  You could look at this as organic growth for the company.

Gross margins

Next we have gross margins.  Gross margins are my hangup, but from the perspective of increasing revenue, this is not a concern and I will explain below:

TILT Holdings Gross Margins
Gross Margins: To see TILT Holdings complete financial data visit TLLTF Stock page

For this, gross margins are direct costs that are related to creating a product.  We find this in the very top of the financial statement.  Cost such as the rent for the processing facility are in this along with water & electricity to grow products, and labor.  Some of these costs are fixed (Rent stays the same no matter what from month to month).  Other costs are variable, such as electricity, wrapping papers and other things like that.  More product going through the system would mean more costs.  But, everything is relative.  Remember, the rent stays the same.

So, as well look at this, revenues may grow 7.5% on a quarterly basis.  But, costs will not necessarily move up at the same rate.  This ultimately translates into higher revenues and lower costs on a relative basis.

What if TILT Holdings organically grew their business that they have right now and kept costs down to a level that would translate into 50% gross margins?  That turns the tables on a lot of the metrics we are looking at.

A 50% gross margin rate on $75M in revenue translates into $37.5M gross profits.  Right now, considering the 30% rate, that would only mean $22.5M in gross profits.  There’s an additional $15M that would trickle downward to EBTIDA and net profits.

Operating Efficiencies

Plain and simple, TILT Holdings’ operating efficiencies are some of the best in the cannabis

TILT Holdings Operating Efficiencies
Operating Efficiencies: To see TILT Holdings complete financial data visit TLLTF Stock page

Operating efficiencies are a mathematical equation of total operating costs over total revenue.  This includes SG&A; Sales, General, & Administrative costs along with Depreciation & Amortization.  This tells us how “efficiently” management produces a product.  Management does not really “produce” a product but, they are involved in the overall purpose of getting sales and profits.  So, knowing how efficiently management operates tells us how dedicated management is to keeping costs contained.

Looking above, and the fact that TILT Holdings is consistently in the top 10 of 100 companies should tell you they are dedicated to cost savings.  This was the metric that really drew me in to the company when I first started looking at them.

EBITDA Profits

As for EBTIDA profits, these are the real milestone for a startup to achieve once they start selling product.  Effectively, TILT Holdings has been EBTIDA profitable the past four quarters, one off-quarter with metrics outside of normal operations notwithstanding:

TILT Holdings EBITDA
EBITDA: To see TILT Holdings complete financial data visit TLLTF Stock page

Remember, I am projecting the $75M and will be adding in $15M in EBTIDA profits for Q4, 2022.  This would be on top of the $4.8M they just printed.  There will be a natural upward progression of two things:

  • Increasing revenues
  • Increasing gross margins

This will trickle down the financial statement to EBTIDA profits.  Then, that trickles downward to net earnings.

Net Earnings

TILT Holdings is not too far off from hitting net earnings positive and if you project forward you can see that this would ultimately translate into a solid EPS:

TILT Holdings Net Earnings
Net Earnings: To see TILT Holdings complete financial data visit TLLTF Stock page

For the current quarter, TILT Holdings has some 326M shares outstanding.  Continuing costs are accounting for almost all of the $4M in losses.  These costs are going to move higher as TILT Holdings expands its business.  But, both gross profits and operating profits are nearly break-even.  Add in the additional $15M for the quarter and you are looking at $10M for earnings for the quarter.

But, as I said, there are going to be increases in continuing costs.  They typically amount to about 10% – 11% of total revenue.  This means that there is the potential of about $7.5M in continuing costs with the remainder $7.5M going to net earnings.  That is an approximate $0.023 EPS for the quarter.

Continue further through 2023 and you are looking at a company that will likely earn about $0.115 EPS for FY 2023.  This puts TLLTF stock on a trajectory of potentially being worth over $10.00 per share.

Total Equity

What drives revenues & profits?  Total equity is a company’s ability to create revenues and profits.  Management’s job is to continuously push for higher revenues and profits and one metric to see if they are building the necessary foundation is total equity:

TILT Holdings Total Equity
Total Equity: To see TILT Holdings complete financial data visit TLLTF Stock page

There are more developments for the company coming and, this is where I need to see improvements.  Most of this is going to organically appear as the company builds its business.  But, with new future growth there is also the potential that there is going to be more growth here via the company building itself a larger foundation.

Cash/Debt Ratio

Here is one of the things that gives me the biggest pause; cash-on-hand:

TILT Holdings Cash:Debt Ratio
Cash:Debt Ratio: To see TILT Holdings complete financial data visit TLLTF Stock page

From a ratio aspect, TILT Holdings is sitting in a poor position near the bottom.  They need more cash.  According to the latest financial documents, TILT Holdings has all of $9M in cash.  They just burnt through nearly half of that in the last quarter.  They now have two quarters’ worth of cash on hand at that rate.  TILT Holdings needs to raise cash.

If TILT Holdings raised about $25M to fund ongoing operations this would amount to about 20% of market capitalization.  Probably, this would be enough to get them to the finish line.  But, that would also potentially dilute the shares downward by 20%.

TILT Holdings TLLTF Stock Chart

As I mentioned, I’m not in love with the current cash position.  But, the stock has maintained a steady tone during a period where most cannabis stocks have sold off more:

TILT Holdings TLLTF Stock Chart
TILT Holdings TLLTF Stock Chart

A company like TILT Holdings likely has access to outside, private deals and will not likely need to go to the ATM to get money.  This would be supportive of TLLTF.

Given the future of the stock, there may be an opportunity to catch a falling dagger here.  But, that in itself could be risky simply because there is far more upside potential than downside.

Is TILT Holdings TLLTF Stock A Good Buy?

I am very bullish on cannabis stocks and can point to a number of undervalued marijuana stocks.  I believe that TILT can achieve their metrics, grow organically, and, by extension, have TLLTF stock move upwards.

Cannabis stocks are nearly completely out of favor of the entire market.  But, profits will not be ignored forever and those of us who are truly believing in the industry are going to see longterm success.

Obviously, the quick profits have evaporated out of the market for stock traders looking for fast money.  But, soon, this could turn on a dime.  TILT Holdings will be a stock that pushes higher.  You could try and wait for the stock to push lower and catch that falling dagger.  Or, you could look at the longterm prospects and see that there is tremendous upside growth potential with this stock over the next 30 months’ time.

I’m not going to add TILT Holdings back into my Top Picks right now.  I want to see a bit more progression.  But, once that starts, it might be too late to take advantage of this undervalued marijuana stock.  It’s tempting, though.

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