Morningstar reduced its price target for Tilray Brands, Inc. (NASDAQ:TLRY) from $3.30 to $3.10, on Wednesday, Feb 14, all while keeping its four-star rating intact, reported Green Market Report's Debra Borchardt.

According to analyst Kristoffer Inton, three reasons contributed to the price decline, including reduced revenue in the short term driven by ongoing market fragmentation, pricing compression and the illicit market in Canada.

In terms of the company's Canadian business, the analyst's report projects "mid-single-digit organic growth over the next 10 years."

While it is affected by increasing competition when it comes to the development of consumer brands, Tilray's acquisition of Hexo in 2023 would result in more market consolidation.

In terms of international operations that make up for 15% of the company's gross cannabis revenue, prospects seem to be better as competition is limited by stricter rules.

"We forecast high-single-digit growth over the next 10 years as more medical cannabis legalization expands to new markets and more patients," the analyst report said.

See also: Tilray Brands Seizes 40% Of Canada's Cannabis Beverages Market Share By Acquiring This Company

In terms of price compression, Borchardt emphasized that "with the ever-present illicit market charging lower prices, Tilray can't afford to raise prices."

Moreover, cannabis production implies high energy costs, Borchardt added, citing an analyst's observation that "if governmental bodies begin to demand more energy-efficient processes, the company can't pass along those higher costs."

The third issue – Canada's illegal market – is depriving legal cannabis businesses of raising prices.

"Years of government efforts have done little to stem illegal cannabis, but a change to the ease of accessing illicit supply could have a significant impact on the pricing power and thus the profitability of legal cannabis companies," the report said.

The analyst said that looking ahead their projections don't include Tilray's acquisition of the majority of the outstanding senior secured convertible notes of MedMen Enterprises Inc. (CSE:MMEN) (OTCQX:MMNFF) equaling 21% ownership in the U.S. multistate operator.

"We forecast CAGR for net revenue from cannabis to be roughly 8% through fiscal 2033," the analyst said. "Our forecast is based on moderate price increases of roughly 3% per year, with weaker price growth in the Canadian recreational market due to Canadian consumers' preference for value over premium."

TLRY Price Action

Tilray's shares traded 5.2269% lower at $1.8199 per share at the time of writing on Tuesday.

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