TILT Holdings aims to offset challenges with ‘accelerated’ entry into Ohio

After a mixed bag in the first quarter, Tilt Holdings Inc. (OTCQB: TLLTF) has its eye on news markets, such as Ohio, to help alleviate some of the pain.

The multistate operator recently detailed some of its operational and liquidity pressures on a call to discuss its first-quarter results.

Delayed shipments from Chinese manufacturing partner Smoore in late 2023 and early 2024 hampered vape hardware revenue, according to CEO Tim Conder. However, he noted robust demand and relationships remain on the “custom side” of the vape business.

“Due to shipping challenges … we did have some lost revenue opportunities,” Conder said, adding the collateral drawdown “has had some impact on revenue” given the payment milestones ahead.

Despite the headwinds, Tilt is preparing itself to jump into new markets, like Ohio’s much-anticipated adult-use launch.

“We continue to work closely with our brand partner Timeless to support their accelerated growth in Ohio,” Conder noted. “And we anticipate as much as a (threefold) initial increase with expected growth beyond as volume is fully realized.”

The company also said it closely monitoring regulatory developments in the state.

“There’s some discussion in the state of Ohio kind of led by the Independent Processors Association about how ultimately the regulations will evolve, and (how) license issuance will evolve through the transition from medical to adult-use sales,” Conder said.

“And there’s a potential that as a stand-alone processor, we may have access to both a retail license and cultivation license. Nothing set in stone, but it’s a proposal that I think it’s sort of making its way through the proper channels,” he added. “And we’re in support of that proposal. I think our business will continue to evaluate how deep or vertical it becomes in the supply chain.”

Conder also gave additional color on the company’s recent agreement with an unnamed multistate operator that included a $10.5 million credit line at a 40% interest rate to fund the buildout of up to three dispensaries in Pennsylvania. While describing the terms as “onerous,” Conder framed the financing as necessary to seize the time-sensitive opportunity given Tilt’s constrained cash position.

“In order to preserve an opportunity that we see being incredibly accretive for all stakeholders, we sought sort of this creative financing opportunity to make sure that this opportunity wasn’t lost to us,” he explained, stressing that the credit line is not a forced drawdown.

Tilt’s current valuation is “compelling” versus peers, according to Pablo Zuanic, director at Zuanic & Associates. He highlighted that the company is trading at an enterprise value to 2024 sales multiple of 0.7x, compared to a 1.8x average for U.S. multistate operators.

“Stock fluctuations and technical issues aside, we continue to believe Tilt’s valuation is compelling, even though debt and debt maturities are of concern,” Zuanic wrote in a Thursday report, pegging Tilt’s enterprise value at $108 million.

However, the analyst was quick to highlight the risks associated with the company’s leveraged position and lackluster cash flow profile. The company ended the first quarter with $56 million in net debt, up from $49 million at the end of 2023. And while this debt load appears manageable relative to sales versus peers, Zuanic warned that its lack of positive EBITDA and negative operating cash flow “increase the risk of stock dilution” down the road.

Shares of Tilt Holdings closed at $0.03 on Tuesday, down 3.65% on the day. The thinly traded stock has declined 31% over the past 12 months. Zuanic maintained an “overweight” rating on TILT shares.