Tilray Brands (NASDAQ: TLRY) is no stranger to acquisitions. That has been a key part of its growth strategy and a way for it to expand its operations over the years. That has allowed it to grow its sales without having to rely on competing in a saturated Canadian cannabis market where margins are low and profitability is difficult to achieve. At the same time, rather than waiting for the U.S. to legalize marijuana, it has broadened its business into other segments, such as alcohol.
Recently, the company announced it was acquiring more beverage brands to bolster that area of its operations. It's a big move for the company, but investors shouldn't be surprised if there are more acquisitions to come.
Tilray is buying four beer brands from Molson Coors
On Aug. 13, Tilray announced that it was acquiring four craft breweries from Molson Coors: Hops Valley, Terrapin Beer, Revolver Brewing, and Atwater Brewery. These brands are based all across the U.S., including Oregon, Georgia, Texas, and Michigan. This complements Tilray's already formidable number of beverage brands, including SweetWater Brewing, Montauk Brewing, and many others.
Last year, the company acquired eight brands from Anheuser-Busch InBev, in a move which Tilray said would make it the fifth-largest craft brewer in the U.S. market.
Beverages are an increasingly important part of Tilray's business. In the company's most recent quarter, which ended May 31, its beverage alcohol segment was its largest, bringing in $76.7 million in sales and accounting for one-third of its top line. Cannabis revenue was slightly less at $71.9 million. The company also generates sales from its distribution and wellness segments, as its diversification has been a key part of its growth strategy.
Investors should expect more deals
By acquiring more brands, Tilray is paving the way for more growth opportunities, specifically in alcohol. But that doesn't mean the company is content with where it is right now. Tilray is still eyeing more acquisitions down the road beyond this recent one. CEO Irwin Simon said that "this will not be our last deal," in a clear sign that the business remains firmly in acquisition mode.
Given the company's focus on expansion in the U.S. market and becoming a large craft brewer, it wouldn't be surprising if it were to continue to accumulate more craft brewing brands in its growing portfolio. While Anheuser-Busch and Molson Coors may be willing to part with slower-growing brands, for Tilray, these can still be good moves for the business. The more diverse the company gets and the less reliant it is on low-margin cannabis products, the better a position it will be in with respect to being able to consistently post a profit.
In the company's most recent quarterly results, its net loss shrank from $119.8 million a year ago to a loss of just $15.4 million -- largely due to its growing alcohol business.
Is Tilray Brands stock a buy on this news?
Tilray is diversifying its operations, which is a great sign to investors that the business is moving in a positive direction. It would be much more difficult for it to have any hopes of achieving a profit if it were simply getting deeper into the Canadian cannabis market.
But a company that focuses heavily on acquisitions can also be a risky one to invest in, because there are many moving parts and inefficiencies to sort out along the way. While acquisitions may give the company's top line a boost, that may only be temporary. Investors should remember that in the long run, these deals may not result in persistent, organic growth. Molson Coors, in this recent deal, says selling these breweries will allow it to focus on faster-growing brands, which suggests the brands Tilray acquired may not possess a whole lot of growth potential.
As a result, it can be difficult to determine what Tilray's true organic growth rate will be, given its constant pursuit of acquisitions. For now, investors are still better off taking a wait-and-see approach with the cannabis stock, at least until the dust settles from all its wheeling and dealing and there's a clearer picture of the company's financial position.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
