TILT Holdings Inc (TLLTF)

[Marillionaire]

While the underperformance for the quarter and persistent market headwinds are disappointing, TILT is experiencing solid early returns with its house of brands strategy on the plant touching side of the business with cannabis sales up >20% Y/Y and pricing holding steady for third party branded products in the wholesale channel despite pressure elsewhere in the business. The branded products strategy, through which TILT is bringing large independent west coast brands into Massachusetts and Pennsylvania, remains in the early stages however the initial success can be a precursor to even better results moving forward on enhanced scale of operations and deeper relationships with partner brands

We adjust our estimates to reflect results and the guidance cut however our rating and price target remain Buy and $0.50 respectively. Importantly, we note that unlike in prior years, TILT is positioned to weather further challenging market conditions following the sale lease back transactions announced this past winter and execution by management. Meanwhile on the plant touching side of the business, TILT has a major catalyst looming with its New York managed services business (operating on behalf of the Shinnecock tribe) particularly if the roll-out of traditional rec sales in the state get delayed into the latter part of 2023 or even later. TILT as a service provider to a Native Tribe will face no such regulatory delays with the company having recently broken ground on a Long Island dispensary.

Investment Highlights:
Q2 Results Hindered by Less Demand for Higher Margin Jupiter Hardware products.
2022 Guidance Cut on Macro Headwinds Including Jupiter Weakness and Challenged Wholesale Pricing.
Company Seeing Early Returns with Brand Push. Greater Benefits to Come from House Brands Strategy on Greater Scale and Enhanced Relationships.
Capitalized to Pay Off Debt and Weather Challenging Macro following Previous Sale Lease Back.
NY Remains a Unique Growth Opportunity in 2023.