While Tilray Brands (NASDAQ: TLRY) might be known best to investors as a leading cannabis play, it’s easy to forget that the Canadian company is increasingly partaking in another lucrative niche: beer.
Cannabis represented around 35% of Tilray’s revenue last fiscal year with another 41% coming from distribution of other, mostly cannabis-related products. That dwarfs the 15% top-line contribution from beverages over the same period. But Tilray’s beverage sales are about to get a huge jolt and could even eclipse its cannabis sales in the near future.
A few weeks ago, Tilray announced it has agreed to acquire eight well-known brands from Anheuser-Busch InBev for only $85 million in cash, including Shock Top, Blue Point Brewing, 10 Barrel Brewing, Redhook, Widmer Brothers, Square Mile Cider, and HiBall Energy.
Assuming the acquisition closes as planned before the end of 2023, those brands should nicely complement Tilray’s existing beer varieties, which include SweetWater Brewing, Montauk Brewing, Alpine Beer, and Green Flash Brewing. The company also owns spirits producer Breckenridge Distillery, and offers CBD-infused sparkling non-alcoholic cocktails through its Happy Flower brand.
To be clear, the divestitures are a drop in the bucket for AB InBev, which still owns hundreds of other smaller beer brands around the world. But this also appears to be a clear signal that the Belgium-based beer stock is focusing on its three core “global brands,” Budweiser, Corona, and Stella Artois — particularly as its continues to feel the fallout of Bud Light boycotts.
It’s a much bigger deal for Tilray, however, as it marks yet another step to diversify operations away from marijuana while the global market for cannabis remains in its earliest, nascent stages.
To be sure, the broader cannabis industry continues to grapple with not only a thriving illicit market for marijuana, but also a lack of funding — a huge problem for smaller, yet-to-be-profitable cannabis stocks — amid higher interest rates and tighter monetary policies from central banks around the world. Tilray’s net revenue from cannabis declined 7.6% last fiscal year (down 2% at constant currencies) to $220 million.
Meanwhile Tilray’s alcoholic beverage revenue soared 33% to $95 million. The addition of its newly acquired brands from AB InBev will triple the size of Tilray’s beer business, from 4 million to 12 million cases. This will also make Tilray the United States’ fifth-largest craft brewer (up from ninth previously) with pro forma beverage alcohol portfolio revenue of $300 million. Even better, Tilray will enjoy new distribution relationships through the Anheuser-Busch system going forward, significantly strengthening its distribution footprint.
That’s not to say Tilray is forsaking its core cannabis operations. The company did acquire fellow Canadian cannabis company Hexo Corp for $56 million in April, then followed that up in recent weeks by buying out the remaining 57.5% equity stake of Canadian cannabis beverage company Truss Beverage it didn’t already own from Molson Coors.
The broader cannabis market continues to steadily advance as well; while Cannabis remains illegal at the federal level in the U.S., it’s now legal for medical purposes in 41 states and for recreational consumption in 24 states. And Tilray shares recently surged in mid-August on news that Germany’s Federal Cabinet had approved a marijuana legalization bill (which, to be fair, still needs to pass in Germany’s Parliament.).
Still, Tilray’s dive into the deep end of the beer pool shouldn’t come as a complete surprise. Management has long suggested it planned to seek diversification through the thriving beverage industry. A little over a month ago,
Tilray CEO Irwin Simon even told Reuters his company was actively seeking strategic acquisition opportunities to expand its beverage business — especially if it meant seizing an opportunity to “take out competitors or ultimately improve some of the cost that [Tilray] can move into [its] facilities.” Simon added that he believed Tilray’s alcohol beverage segment would grow to a $300-million-plus business in the coming years.
Little did we know that Tilray would effectively achieve that vision in one fell swoop with a single deal for only $85 million in cash — a pittance considering the company acquired its SweetWater Brewing brand alone in a cash-and-stock deal valued at $300 million in 2020.
Of course, the beer aisle is a crowded space. And investors would do well to keep in mind that Tilray has yet to achieve sustained profitability; the company incurred a non-GAAP (adjusted) net loss of $129.5 million, or $0.21 per share last fiscal year (2023) — though that fell from $183 million, or $0.38 per share in fiscal 2022. The company eked out positive adjusted free cash flow (FCF) of $1.26 million last fiscal year, compared to negative adjusted FCF of $187.6 million in fiscal 2022.
If Tilray can manage to use these eight established beer brands to build on that momentum and expand its operating leverage even further, it could be exactly the catalyst the company needs to hold it over as it solidifies its leadership in the budding cannabis space. If that happens, the recent gains from Tilray stock could prove to be only the start of a much longer-term trend.
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